2019 A&B Wastewater Revenue Bond

NEW ISSUES—FULL BOOK-ENTRY RATING: S&P: AA- See “RATING.” In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2019 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2019 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2019 Bonds. See “TAX MATTERS.” $22,510,000 $66,075,000 City of Richmond, California City of Richmond, California Wastewater Revenue Bonds, Wastewater Revenue Refunding Bonds, Series 2019A Series 2019B Dated: Date of Delivery Due: August 1, as shown on inside cover page The City of Richmond, California (the “City”) is issuing $22,510,000 principal amount of Wastewater Revenue Bonds, Series 2019A (the “Series 2019A Bonds”), $66,075,000 principal amount of Wastewater Revenue Refunding Bonds, Series 2019B (the “Series 2019B Bonds” and together with the Series 2019A Bonds, the “Series 2019 Bonds”) to: (i) finance improvements as described herein (the “Project”) to the wastewater collection, treatment and disposal system of the City (collectively, the “Enterprise”); (ii) reimburse the Series 2008A Bonds Letter of Credit Bank (defined herein) for a draw on the Series 2008A Bonds Letter of Credit funding the redemption of the City’s outstanding Variable Rate Wastewater Revenue Refunding Bonds, Series 2008A, (the “Series 2008A Bonds”); (iii) fund a termination payment with respect to the termination of the Series 2008A Bonds Swap Agreement (as defined herein) related to the Series 2008A Bonds; (iv) defease and refund a portion of the City’s outstanding Wastewater Revenue Bonds Taxable Build America Bonds, Series 2010B (the “Taxable Series 2010B Bonds”); and (v) pay certain costs associated with the issuance of the Series 2019 Bonds, as more fully described herein. See “PLAN OF FINANCE.” The Series 2019 Bonds are issued pursuant to the City’s Charter and Chapter 13.56 of Article 13 of the Richmond Municipal Code (the “Bond Law”), and the Wastewater Revenue Bond Indenture dated as of October 1, 2006, as previously amended and supplemented, including as amended and supplemented by a Seventh Supplemental Wastewater Revenue Bond Indenture dated, as of June 1, 2019 (the “Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The principal of the Series 2019 Bonds is payable upon their respective stated maturities on August 1 of each year, as set forth on the inside cover page. Interest on the Series 2019 Bonds will be payable semiannually on February 1 and August 1 of each year, commencing February 1, 2020 (each, an “Interest Payment Date”). Interest on the Series 2019 Bonds is payable on each Interest Payment Date to the Owners of the Series 2019 Bonds as of the close of business on the Record Date in respect of such Interest Payment Date. “Record Date” means, with respect to the Series 2019 Bonds, the fifteenth day of the month preceding an Interest Payment Date. The Series 2019 Bonds are being issued in fully registered form and shall be initially registered in the name of “Cede & Co.,” as nominee of The Depository Trust Company. The Series 2019 Bonds shall mature, subject to prior redemption as provided in the Indenture, upon the terms and conditions hereinafter set forth. The Series 2019 Bonds shall bear interest at the rate(s) determined in the Indenture; provided that any overdue principal shall bear interest at the rate borne by the Series 2019 Bonds on the date on which such principal became due and payable. Registered ownership of the Series 2019 Bonds, or any portion thereof, may not thereafter be transferred except as set forth in in the Indenture. Individual purchases of ownership interests in the Series 2019 Bonds will be made in book-entry form only in denominations of $5,000 or any integral multiple thereof. See “THE SERIES 2019 BONDS.” The Series 2019 Bonds are limited obligations of the City payable from Net Revenues, consisting primarily of Gross Revenues of the Enterprise (defined herein) after payment of Operating Expenses. The pledge of Net Revenues under the Indenture securing payment of the Series 2019 Bonds is on a parity with the pledge thereof securing (i) the City’s Wastewater Revenue Bonds, Series 2017A (the “Series 2017A Bonds”), which are currently outstanding in the aggregate principal amount of $32,310,000, and (ii) the Series 2008A Bonds, which are currently outstanding in the aggregate principal amount of $32,855,000, and the Taxable Series 2010B Bonds, which are currently outstanding in the aggregate principal amount of $38,865,000. All of the outstanding Series 2008A Bonds and a portion of the outstanding Taxable Series 2010B Bonds will be refunded from proceeds of the Series 2019 Bonds. See “PLAN OF FINANCE–Refunding.” No debt service reserve fund will be established under the Indenture for the Series 2019 Bonds. See “SECURITY AND SOURCES OF PAYMENT OF THE BONDS–Outstanding Parity Debt and Reserve Funds for Other Series of Bonds.” The City may issue additional Parity Debt secured by a pledge of Net Revenues on a parity basis with the Series 2019 Bonds. The Series 2019 Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Series 2019 Bonds. Purchasers will not receive certificates representing their interests in the Series 2019 Bonds. Payments of principal of and interest on the Series 2019 Bonds will be made by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Series 2019 Bonds. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.” The Series 2019 Bonds are subject to optional and mandatory redemption prior to their respective stated maturity dates. See “THE SERIES 2019 BONDS–Redemption Provisions for the Series 2019A Bonds” and “–Redemption Provisions for the Series 2019B Bonds.” THE SERIES 2019 BONDS ARE REVENUE OBLIGATIONS OF THE CITY AND ARE PAYABLE AS TO BOTH PRINCIPAL AND INTEREST, AND ANY PREMIUM UPON REDEMPTION THEREOF, EXCLUSIVELY FROM NET REVENUES AND CERTAIN OTHER FUNDS PLEDGED UNDER THE INDENTURE. THE SERIES 2019 BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE CITY. THE SERIES 2019 BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION, OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE, EXCEPT TO THE EXTENT OF CERTAIN AMOUNTS HELD UNDER THE INDENTURE PLEDGED THEREFOR, SOLELY FROM NET REVENUES. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR THE INTEREST ON THE SERIES 2019 BONDS. THE ISSUANCE OF THE SERIES 2019 BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATSOEVER THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. This cover page contains certain information for general reference only and is not intended to be a summary of the terms of this offering. An investment in the Series 2019 Bonds involves risk. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision, see “CERTAIN RISKS TO BONDOWNERS,” as well as other factors discussed throughout this Official Statement. The Series 2019 Bonds will be offered when, as and if issued by the City and received by the Underwriters, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City. Certain matters will be passed upon for the City by the City Attorney of the City of Richmond and by Schiff Hardin LLP, as Disclosure Counsel to the City. Certain matters will be passed upon for the Underwriters by Jones Hall, A Professional Law Corporation, San Francisco, California. The Series 2019 Bonds, in book-entry form only, will be available for delivery through facilities of The Depository Trust Company in New York, New York on or about June 26, 2019.

Date of the Official Statement: June 13, 2019.

MATURITY SCHEDULE

$22,510,000 City of Richmond, California Wastewater Revenue Bonds, Series 2019A

$2,330,000 Serial Series 2019A Bonds

Maturity Principal (August 1) Amount Interest Rate Yield Price CUSIP No.† 2038 $1,180,000 5.000% 2.390% 123.289C 764507CZ0 2039 1,150,000 5.000 2.430 122.886C 764507DA4

$5,020,000 5.000% Term Bond Due August 1, 2044–Yield: 2.600%–Price: 121.190C–CUSIP No.†: 764507DB2 $15,160,000 4.000% Term Bond Due August 1, 2049–Yield: 3.030%–Price: 108.381C–CUSIP No.†: 764507DC0

$66,075,000 City of Richmond, California Wastewater Revenue Refunding Bonds, Series 2019B

$61,440,000 Serial Series 2019B Bonds

Maturity Principal (August 1) Amount Interest Rate Yield Price CUSIP No.† 2021 $1,115,000 5.000% 1.200% 107.845 764507DD8 2022 1,170,000 5.000 1.210 111.485 764507DE6 2023 2,815,000 5.000 1.220 115.060 764507DF3 2024 2,930,000 5.000 1.240 118.515 764507DG1 2025 3,050,000 5.000 1.320 121.489 764507DH9 2026 3,175,000 5.000 1.370 124.469 764507DJ5 2027 3,315,000 5.000 1.470 126.853 764507DK2 2028 3,455,000 5.000 1.560 129.068 764507DL0 2029 3,605,000 5.000 1.650 131.038 764507DM8 2030 3,750,000 5.000 1.770 129.743 C 764507DN6 2031 3,905,000 5.000 1.890 128.464 C 764507DP1 2032 4,070,000 5.000 2.000 127.303 C 764507DQ9 2033 4,245,000 5.000 2.090 126.364 C 764507DR7 2034 4,420,000 5.000 2.170 125.535 C 764507DS5 2035 4,585,000 4.000 2.510 113.215 C 764507DT3 2036 4,735,000 4.000 2.600 112.360 C 764507DU0 2037 4,885,000 4.000 2.650 111.889 C 764507DV8 2038 2,215,000 4.000 2.700 111.420 C 764507DW6

$4,635,000 3.000% Term Bond Due August 1, 2040–Yield: 3.160%–Price: 97.548–CUSIP No.†: 764507DX4

______† Copyright © 2019 CUSIP Global Services. CUSIP is a registered trademark of the American Bankers Association. CUSIP data are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by S&P Global Market Intelligence, and are provided for convenience of reference only. The CUSIP numbers listed above are being provided solely for the convenience of bondholders and none of the City or the Underwriters makes any representation with respect to such numbers or undertake any responsibility for its accuracy. The CUSIP numbers are subject to being changed after the issuance of the Series 2019 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the Series 2019 Bonds C Priced to optional redemption date of August 1, 2029, at par.

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriters to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing.

No Unlawful, Sales, Solicitations, or Offers. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2019 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Use of this Official Statement. This Official Statement is submitted in connection with the sale of the Series 2019 Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Series 2019 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact.

Effective Date. This Official Statement speaks only as of its date. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City of the Enterprise since the date hereof. This Official Statement, including any supplement or amendment, is intended to be deposited with the Electronic Municipal Market Access site maintained by the Municipal Securities Rulemaking Board.

Preparation of this Official Statement. All descriptions and summaries of documents and statutes set forth do not purport to be comprehensive or definitive, and reference is made to each document and statute for complete details of all terms and conditions. All statements in this Official Statement are qualified in their entirety by reference to each such document and statute. Certain capitalized terms used but not defined in this Official Statement are defined in Appendix C–“Summary of Certain Provisions of the Indenture–Definitions.”

The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement pursuant to their responsibilities to investors under the federal securities laws, but the Underwriters do not guarantee the accuracy or completeness of such information.

Stabilization of and Changes to Offering Prices. In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Series 2019 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Series 2019 Bonds to certain dealers and others at prices lower than the initial public offering prices or at yields higher than the initial public offering yields set forth on the inside cover page hereof and said initial offering prices or yields may be changed from time to time by the Underwriters.

The issuance and sale of the Series 2019 Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, and the Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.

Website Information Not Incorporated by Reference. The City maintains a website. Unless specifically indicated otherwise, the information presented on that website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Series 2019 Bonds.

Use of Estimates and Projections. Certain statements contained in this Official Statement reflect not historical facts but forecasts and “forward-looking statements.” In this respect, the words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “plan,” “budget,” and similar expressions are intended to identify forward-looking statements. Projections, forecasts, assumptions, expressions of opinions, estimates and other forward statements are not to be construed as representations of fact and are qualified in their entirety by the cautionary statements set forth in this Official Statement.

The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur or do not occur.

This Official Statement contains information concerning the ratings assigned to the City and to the Royal Bank of Canada, as the Series 2008A Bonds Swap Provider (as described herein). Such ratings reflect only the view of the agency giving such rating and are provided for convenience of reference only. Such rating information has been obtained from sources believed to be reliable but has not been confirmed or re-verified by such rating agencies. Neither the City nor the Underwriters take any responsibility for the accuracy of such rating, gives any assurance that such rating will apply for any given period of time, or that such rating will not be revised downward or withdrawn if, in the judgment of the agency providing such rating, circumstances so warrant.

CITY OF RICHMOND, CALIFORNIA

CITY COUNCIL Tom Butt, Mayor Ben Choi, Vice Mayor Nathaniel Bates, Councilmember Eduardo Martinez, Councilmember Demnlus Johnson, Councilmember Jael Myrick, Councilmember Melvin Willis, Councilmember

CITY ADMINISTRATION Carlos Martinez, City Manager Belinda Warner, City Finance Director Ryan Smith, Director of Water Resource Recovery Bruce Reed Goodmiller, City Attorney

PROFESSIONAL SERVICES

Orrick, Herrington & Sutcliffe LLP Schiff Hardin LLP San Francisco, California San Francisco, California Bond Counsel Disclosure Counsel

The Bank of New York Mellon Trust Company, N.A. Public Resources Advisory Group San Francisco, California Oakland, California Trustee Municipal Advisor

The Majors Group Robert Thomas CPA, LLC Norristown, Pennsylvania Minneapolis, Minnesota Swap Advisor Verification Agent

Raymond James & Associates, Inc. Memphis, Tennessee Bidding Agent

TABLE OF CONTENTS

Page Page

INTRODUCTION ...... 1 Management of the Enterprise by General; Authorization ...... 1 Veolia ...... 23 Purpose ...... 1 Master Planning ...... 26 The City ...... 2 Capital Improvement Program ...... 26 Outstanding Parity Obligations ...... 2 Facilities Description ...... 27 Security and Sources of Payment Customer Base ...... 30 for the Bonds ...... 2 Wastewater Flows ...... 32 Additional Bonds ...... 3 Insurance on the Enterprise ...... 32 Rate Covenant ...... 3 Regulatory Matters ...... 33 Continuing Disclosure ...... 4 FINANCIAL MATTERS RELATING TO Summaries Not Definitive ...... 4 THE ENTERPRISE ...... 36 PLAN OF FINANCE ...... 4 Billing and Collection Procedures ...... 36 Capital Improvements ...... 4 Rates, Fees and Charges ...... 36 Refunding of the Refunded Series Connection Fee ...... 38 2008A Bonds ...... 5 Comparison of Enterprise Charges ..... 38 Refunding of the Refunded Basis of Accounting ...... 38 Taxable Series 2010B Bonds ...... 6 Sources of Funds; Operating ESTIMATED SOURCES AND USES OF Costs ...... 39 FUNDS ...... 7 Management’s Discussion of THE SERIES 2019 BONDS ...... 7 Operating Results ...... 40 General ...... 7 Budget Process ...... 40 Redemption Procedures for the Historical and Projected Series 2019 Bonds ...... 8 Revenues, Operating Redemption Provisions for the Expenses, and Debt Service Series 2019A Bonds ...... 8 Coverage ...... 40 Redemption Provisions for the CONSTITUTIONAL AND STATUTORY Series 2019B Bonds ...... 10 LIMITATIONS ON TAXES AND DEBT SERVICE SCHEDULES ...... 11 APPROPRIATIONS ...... 42 SECURITY AND SOURCES OF Article XIII B...... 42 PAYMENT FOR THE BONDS ...... 13 Proposition 62 ...... 42 Pledge of Net Revenues Under the Proposition 218 ...... 43 Indenture ...... 13 Effect of Proposition 218 and of Outstanding Parity Obligations Possible General Limitations and Reserve Funds for Other on Enforcement Remedies ...... 45 Series of Bonds ...... 14 Future Initiatives ...... 45 Flow of Funds ...... 15 CERTAIN RISKS TO BONDOWNERS ...... 45 No Reserve Fund ...... 17 System Demand ...... 46 Rate Covenant ...... 17 System Expenses ...... 46 Additional Bonds and Parity Debt ...... 17 Risks Related to Subsidy Receipts Rate Stabilization Fund ...... 18 for the Outstanding Taxable THE WASTEWATER ENTERPRISE ...... 19 Series 2010B Bonds ...... 46 Overview ...... 19 Limited Recourse on Default ...... 46 Service Area ...... 21 Initiatives; Changes in Law ...... 47 History ...... 23 Future Rate Increases ...... 47 City Management ...... 23 Statutory and Regulatory Impact ...... 47 Seismic Risks ...... 48

i Climate Change ...... 48 UNDERWRITING ...... 54 Insurance ...... 49 Series 2019A Bonds ...... 54 No Tax Pledge; No Recourse to Series 2019B Bonds ...... 55 City General Fund ...... 50 MUNICIPAL ADVISOR ...... 55 Cybersecurity ...... 50 REGISTERED INVESTMENT ADVISOR .... 55 Bankruptcy ...... 50 APPROVAL OF LEGAL PROCEEDINGS ... 55 Changes in Law ...... 51 FINANCIAL STATEMENTS ...... 55 Loss of Tax Exemption ...... 51 CONTINUING DISCLOSURE ...... 56 Secondary Markets and Prices ...... 52 VERIFICATION OF MATHEMATICAL TAX MATTERS ...... 52 COMPUTATIONS ...... 56 ABSENCE OF MATERIAL LITIGATION .... 54 MISCELLANEOUS ...... 57 RATING ...... 54

MAPS AND TABLES

Figure 1 – Map Showing the Treatment Plant and Other Enterprise Facilities...... 20 Figure 2 – Map of the Service Area of the Enterprise...... 22

Table 1A – Refunded Series 2008A Bonds ...... 6 Table 1B – Refunded Taxable Series 2010B Bonds ...... 7 Table 2 – 2019-20 through 2023-24 Capital Improvement Program Projects ...... 27 Table 3 – Customers Served and Total Revenues ...... 30 Table 4 – Principal Wastewater Customers ...... 31 Table 5 – Average Monthly Dry Weather Flow ...... 32 Table 6 – Average Monthly Wet Weather Flow ...... 32 Table 7 – Annual User Rate and Charges ...... 37 Table 8 – Comparative Monthly Wastewater Charges – Average Single Family Residences ...... 38 Table 9 – Summary of Revenues, Expenses and Changes in Fund Net Position ...... 39 Table 10 – Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage ...... 41

APPENDICES

Appendix A – Certain Economic, Demographic, and Financial Information Regarding the City of Richmond ...... A-1 Appendix B – Comprehensive Annual Financial Report of the City for the Year Ending June 30, 2018 ...... B-1 Appendix C – Summary of Certain Provisions of the Indenture ...... C-1 Appendix D – Proposed Form of Bond Counsel Opinion ...... D-1 Appendix E – Form of the Continuing Disclosure Agreement ...... E-1 Appendix F – DTC and the Book-Entry Only System ...... F-1

OFFICIAL STATEMENT

$22,510,000 $66,075,000 City of Richmond, California City of Richmond, California Wastewater Revenue Bonds, Wastewater Revenue Refunding Bonds, Series 2019A Series 2019B

INTRODUCTION

This Introduction is only a brief description of and partial guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page through the appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of the Series 2019 Bonds to potential investors is made only by means of the entire Official Statement.

General; Authorization

The purpose of this Official Statement, which includes the cover page through the appendices, is to set forth certain information concerning the City of Richmond, California (the “City”) and its wastewater collection, treatment and disposal systems (collectively, the “Enterprise”), in connection with the sale by the City of $22,510,000 principal amount of Wastewater Revenue Bonds, Series 2019A (the “Series 2019A Bonds”) and $66,075,000 principal amount of Wastewater Revenue Refunding Bonds, Series 2019B (the “Series 2019B Bonds” and together with the Series 2019A Bonds, the “Series 2019 Bonds”).

The Series 2019 Bonds are being issued pursuant to Chapter 13.56 of Article 13 of the Richmond Municipal Code (the “Bond Law”) and the Wastewater Revenue Bond Indenture dated as of October 1, 2006, as previously amended and supplemented, including as amended and supplemented by a Seventh Supplemental Wastewater Revenue Bond Indenture dated, as of June 1, 2019 (the “Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

The Series 2019 Bonds are being issued in fully registered form and shall be initially registered in the name of “Cede & Co.,” as nominee of The Depository Trust Company. The Series 2019 Bonds shall mature, subject to prior redemption as provided in the Indenture, upon the terms and conditions hereinafter set forth. The Series 2019 Bonds shall bear interest at the rate(s) determined in the Indenture; provided that any overdue principal shall bear interest at the rate borne by the Series 2019 Bonds on the date on which such principal became due and payable. Each Series 2019 Bond may be assigned by the Trustee a distinctive number or letter and number, and a record of the same shall be maintained by the Trustee. Registered ownership of the Series 2019 Bonds, or any portion thereof, may not thereafter be transferred except as set forth in in the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

Purpose

The Series 2019 Bonds are being issued to: (i) finance improvements as described herein (the “Project”) to the “Enterprise; (ii) reimburse the Series 2008A Bonds Letter of Credit Bank (defined herein) for a draw on the Series 2008A Bonds Letter of Credit funding the redemption of the City’s outstanding Variable Rate Wastewater Revenue Refunding Bonds, Series 2008A, (the “Series 2008A Bonds”); (iii) fund a termination payment (the “Termination Payment”) with respect to the Series 2008A Bonds Swap Agreement related to the Series 2008A Bonds; as described below; (iv) defease and refund a portion of the City’s outstanding Wastewater Revenue Bonds Taxable Build America Bonds, Series 2010B (the “Taxable Series 2010B Bonds”); and (v) pay certain costs associated with the issuance of the Series 2019 Bonds, as more fully described herein. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.”

The City

The City is located 16 miles northeast of the City and County of San Francisco, on the western shore of Contra Costa County along the San Francisco Bay and occupies 33.7 square miles of land area. The population of the City, as of January 1, 2019, was estimated by the California Department of Finance to be approximately 110,436. The City was incorporated in 1905 and adopted its charter in 1909. For additional information regarding the City see APPENDIX A–“CERTAIN ECONOMIC, DEMOGRAPHIC, AND FINANCIAL INFORMATION REGARDING THE CITY OF RICHMOND.”

Outstanding Parity Obligations

The pledge of Net Revenues under the Indenture securing payment of the Series 2019 Bonds is on a parity with a pledge of Net Revenues securing other obligations, including the Bonds (as defined below) and other indebtedness constituting Parity Debt under the Indenture (collectively, the “Parity Obligations”). As of June 1, 2019, the Bonds consist of $32,855,000 outstanding principal amount of Series 2008A Bonds; $38,865,000 outstanding principal amount of Taxable Series 2010B Bonds; and $32,310,000 outstanding principal amount of City of Richmond Wastewater Revenue Bonds, Series 2017A (the “Series 2017A Bonds”). All of the Series 2008A Bonds and a portion of the Series 2010B Bonds Outstanding as of June 1, 2019 will be refunded by the Series 2019 Bonds. See “PLAN OF FINANCE.” The Series 2019 Bonds, the unrefunded Taxable Series 2010B Bonds, the Series 2017A Bonds, and any additional bonds that may be issued under the Indenture are collectively referred to as the “Bonds.” The Series 2008A Bonds are supported by an irrevocable, transferable direct-pay letter of credit (the “Series 2008A Bonds Letter of Credit”) issued by Barclays Bank PLC (the “Series 2008A Bonds Letter of Credit Bank”), pursuant to and subject to the terms of a Reimbursement Agreement, dated as of July 12, 2017, (the “Series 2008A Bonds Reimbursement Agreement”) between the City and the Series 2008A Bonds Letter of Credit Bank. The City’s obligation to reimburse the Series 2008A Bonds Letter of Credit Bank for drawings under the letter of credit pursuant to the Series 2008A Bonds Letter of Credit Reimbursement Agreement is Parity Debt secured by a pledge of Net Revenues on a parity with the Series 2019 Bonds.

Following the redemption of the Series 2008A Bonds, the Series 2008A Bonds Letter of Credit will be terminated. See “PLAN OF FINANCE–Refunding.” See also “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Outstanding Parity Obligations and Reserve Funds for Other Series of Bonds.”

The City is a party to a fixed payer swap agreement (the “Series 2008A Bonds Swap Agreement”) with the Royal Bank of Canada (the “Series 2008A Bonds Swap Provider”) related to the Series 2008A Bonds. The regularly scheduled fixed rate swap payments under the Series 2008A Bonds Swap Agreement are secured by Net Revenues under the Indenture on a parity with the Series 2019 Bonds as Parity Debt. Any extraordinary termination payments payable to the Series 2008A Bonds Swap Provider are subordinate to the payment of principal of and interest on the Series 2019 Bonds. The City expects to redeem all of the Series 2008A Bonds from proceeds of a draw on the Series 2008A Bonds Letter of Credit and reimburse the Series 2008A Bonds Letter of Credit Bank for such draw from a portion of the proceeds of the Series 2019 Bonds, in which event the Series 2008A Bonds Swap Agreement will be terminated in whole. See “PLAN OF FINANCE–Refunding.” See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS– Outstanding Parity Obligations and Reserve Funds for Other Series of Bonds–Series 2008A Bonds Swap Agreement.”

Security and Sources of Payment for the Bonds

Pledge of Net Revenues of the Enterprise. The Series 2019 Bonds are limited obligations of the City payable from Net Revenues of the Enterprise, consisting of Gross Revenues remaining after payment of Operating Expenses (as such terms are defined under the caption “SECURITY AND SOURCES OF PAYMENTS FOR THE BONDS–Pledge of Net Revenues Under the Indenture”) and are not secured by a legal

2 or equitable pledge of, or charge or lien upon, any property of the City or any of its income or receipts, except the Net Revenues on a parity with the pledge thereof securing the Series 2008A Bonds, the Taxable Series 2010B Bonds, the City’s obligation to reimburse the Series 2008A Bonds Letter of Credit Bank for drawings on the Series 2008A Bonds Letter of Credit, regularly scheduled fixed rate swap payments under the Series 2008A Bonds Swap Agreement, and the Series 2017A Bonds. See “PLAN OF FINANCE– Refunding,” and “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

THE SERIES 2019 BONDS ARE REVENUE OBLIGATIONS OF THE CITY AND ARE PAYABLE AS TO BOTH PRINCIPAL AND INTEREST, AND ANY PREMIUM UPON REDEMPTION THEREOF, EXCLUSIVELY FROM NET REVENUES AND CERTAIN OTHER FUNDS PLEDGED UNDER THE INDENTURE. THE SERIES 2019 BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE CITY. THE SERIES 2019 BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION, OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE, EXCEPT TO THE EXTENT OF CERTAIN AMOUNTS HELD UNDER THE INDENTURE PLEDGED THEREFOR, SOLELY FROM NET REVENUES. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR THE INTEREST ON THE SERIES 2019 BONDS. THE ISSUANCE OF THE SERIES 2019 BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATSOEVER THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT.

No Reserve Fund. A debt service reserve fund will not be established under the Indenture for the Series 2019 Bonds, nor will the Series 2019 Bonds be secured by amounts on deposit in any other reserve accounts for any other Bonds, including the Parity Reserve Fund, or the Series 2010 Reserve Fund.

Additional Bonds

Upon the satisfaction of certain conditions, the Indenture authorizes the City to issue additional series of bonds (“Additional Bonds”) and Parity Debt payable on a parity with the Bonds, provided that, among other requirements set forth in the Indenture, the Debt Service Coverage Ratio, as calculated under the Indenture, will not be less than, or was and will be at least equal to, 1.25:1.0, and, notwithstanding the above, the Indenture also authorizes the issuance of Additional Bonds to refund any outstanding Bonds or Parity Debt, provided, that, among other requirements set forth in the Indenture, the Maximum Annual Debt Service with respect to any such refunding Bonds will not exceed 1.10 times the Maximum Annual Debt Service, as calculated under the Indenture, with respect to the Bonds or Parity Debt being refunded. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Additional Bonds and Parity Debt.”

Rate Covenant

The City covenants under the Indenture that it will at all times, while any bonds (including the Series 2019 Bonds) remain outstanding, fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise which are sufficient to yield Net Revenues in each Fiscal Year so that the ratio of Net Revenues to annual Debt Service during the Bond Year which commences in such Fiscal Year is not less than 1.25:1.0. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS– Rate Covenant.” However, the City’s ability to increase such rates, fees and charges is subject to the limitations imposed by Proposition 218. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218” and “–Effect of Proposition 218 and of Possible General

3 Limitations on Enforcement Remedies.” The City has approved rate increases through Fiscal Year 2019-20. See “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Rates, Fees and Charges.”

Continuing Disclosure

The City has covenanted to provide certain financial information and operating data relating to the Series 2019 Bonds by not later than March 26 following the end of the City’s Fiscal Year (which currently is June 30) commencing with the report for Fiscal Year 2018-19 (the “Annual Report”), and to provide notices of the occurrence of certain specified events. The Annual Report and notices of specified events will be filed by means of the Electronic Municipal Market Access (EMMA) site maintained by the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is contained within APPENDIX E–“FORM OF CONTINUING DISCLOSURE AGREEMENT.”

Summaries Not Definitive

The summaries and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to each such document, statute, report or instrument. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the City.

All references to and summaries of the Indenture, the Series 2019 Bonds and the Bond Law referred to herein are qualified in their entirety by reference to the full text of such document, copies of which are available for inspection at the office of the Director of Finance of the City at 450 Civic Center Plaza, Richmond, California, and will be available from the Trustee upon request and payment of duplication costs. Forward looking statements in this Official Statement are subject to risks and uncertainties. Actual results may vary from forecasts or projections contained herein because events and circumstances do not occur as expected, and such variances may be material.

PLAN OF FINANCE

The net proceeds from the sale of the Series 2019 Bonds will be used to: (i) finance improvements to the Enterprise; (ii) reimburse the Series 2008A Bonds Letter of Credit Bank for a draw on the Series 2008A Bonds Letter of Credit funding the redemption of the City’s outstanding Series 2008A Bonds; (iii) fund a termination payment with respect to the termination of the Series 2008A Bonds Swap Agreement (as defined herein) related to the Series 2008A Bonds; (iv) defease and refund a portion of the City’s outstanding Taxable Series 2010B Bonds; and (v) pay certain costs associated with the issuance of the Series 2019 Bonds. The application of proceeds of the Series 2019 Bonds is described under “ESTIMATED SOURCES AND USES.”

Capital Improvements

A portion of the proceeds of the Series 2019 Bonds will be applied primarily to pay, or reimburse, the costs of certain improvements to the Enterprise (the “Project”) which comprise a portion of the City‘s Capital Improvement Plan. See “THE WASTEWATER ENTERPRISE–Capital Improvement Plan.”

The City has identified a number of projects to renovate, rehabilitate and improve the sewer collection facilities of the Enterprise and comply with regulatory requirements as well as obligations of the City under the 2018 Settlement Agreement, which is described in “THE WASTEWATER ENTERPRISE–

4 Regulatory Matters–Prior Noncompliance–Baykeepers Lawsuit.” These projects are identified in the 2019-20 through 2023-24 Capital Improvement Program. See “THE WASTEWATER ENTERPRISE–Capital Improvement Plan.”

The City estimates that the total cost of these improvements over approximately five years will be approximately $175.4 million, with funding from net proceeds from the issuance of the Series 2019 Bonds in the approximate amount of $25.1 million, and additional funding anticipated to be derived from a combination of pay-as-you-go sources, a California Clean Water State Revolving Fund loan in the approximate amount of $36 million (the “State Loan”), the proceeds of which are expected to be received during the second quarter of Fiscal Year 2019-20, and the issuance of Additional Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Additional Bonds and Parity Debt” and “THE WASTEWATER ENTERPRISE–Capital Improvement Program.”

Construction. Pursuant to a Management Agreement, Veolia Water North America Operating Services, LLC will be responsible for management of the Project. See “THE WASTEWATER ENTERPRISE– Management of the Enterprise by Veolia–Summary of the Management Agreement.” The City expects to award contracts to the contractors submitting the lowest responsive bids.

Environmental and Other Approvals. Projects undertaken by the City, including the Project financed with the proceeds of the Series 2019 Bonds, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) (“CEQA”). Under CEQA, a public agency is required, following preparation of an initial assessment, to determine whether an environmental impact report (an “EIR”), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared.

The City has obtained all necessary CEQA approvals for the Project. Any other approvals are ministerial and expected in due course.

Refunding of the Refunded Series 2008A Bonds

General. A portion of the proceeds of the Series 2019 Bonds will be applied to reimburse the Series 2008A Bonds Letter of Credit Bank for a draw on the Series 2008A Bonds Letter of Credit, the proceeds of which will be used to refund all of the Series 2008A Bonds described below (the “Refunded Series 2008A Bonds”). The Refunded Series 2008A Bonds have been called for redemption on June 26, 2019, the date of delivery of the Series 2019 Bonds.

Table 1A Refunded Series 2008A Bonds

$32,855,000 City of Richmond, California Variable Rate Wastewater Revenue Refunding Bonds, Series 2008A Redemption Date: June 26, 2019

Maturity Date CUSIP No.(1) (August 1) Amount (764507) 2037(2) $32,260,000 CN7 2038(2) 595,000 CP2 ______(1) Copyright © 2019 CUSIP Global Services. CUSIP is a registered trademark of the American Bankers Association. CUSIP data are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by S&P Global Market Intelligence, and are provided for convenience of reference only. (2) Term Bond.

5 Effect of Redemption of the Refunded Series 2008A Bonds on Ancillary Agreements. The Refunded Series 2008A Bonds bear interest at variable interest rates. The Refunded Series 2008A Bonds are additionally secured by the Series 2008A Bonds Letter of Credit. The City entered into the Series 2008A Bonds Swap Agreement under which the City makes fixed payments and receives variable payments. Upon the redemption of the Refunded Series 2008A Bond, the Series 2008A Bonds Letter of Credit and the Series 2008A Bonds Swap Agreement will both be terminated.

Refunding of the Refunded Taxable Series 2010B Bonds

A portion of the proceeds of the Series 2019 Bonds will be deposited with The Bank of New York Mellon Trust Company, N.A. (the “Taxable 2010B Bonds Escrow Agent”) pursuant to the terms and conditions of an Escrow Agreement, made and entered into as of June 1, 2019 (the “Taxable 2010B Bonds Escrow Agreement”), by and between the City and the Taxable 2010B Bonds Escrow Agent. The amounts transferred to the Taxable 2010B Bonds Escrow Agent will be deposited into a refunding escrow (the “Refunding Escrow”) and applied to (i) pay when due the principal amount of and interest on the Taxable Series 2010B Bonds described below (the “Refunded Taxable Series 2010B Bonds”), and (ii) redeem the Refunded Taxable Series 2010B Bonds at a redemption price equal to 100% of the principal amount, plus accrued interest to the August 1, 2020 redemption date (collectively, the “Refunded Taxable Series 2010B Bonds Redemption Price”).

Table 1B Refunded Taxable Series 2010B Bonds

$36,480,000 City of Richmond, California Wastewater Revenue Bonds Taxable Build America Bonds, Series 2010B Redemption Date: August 1, 2020

Maturity Date CUSIP No.(1) (August 1) Amount Interest Rate (764507) 2025(2) $6,665,000 5.394% CK3 2030(2) 8,005,000 6.211 CL1 2040(2) 21,810,000 6.461 CM9 ______(1) Copyright © 2019 CUSIP Global Services. CUSIP is a registered trademark of the American Bankers Association. CUSIP data are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by S&P Global Market Intelligence, and are provided for convenience of reference only. (2) Term Bond.

The sufficiency of the deposits in the Refunding Escrow to pay the Refunded Taxable Series 2010B Bonds on their respective scheduled redemption date have been verified by Robert Thomas CPA, LLC, Minneapolis, Minnesota (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL COMPUTATIONS.”

6 ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds with respect to the Series 2019 Bonds and other amounts held under the Indenture are as follows: Series 2019A Series 2019B Bonds Bonds Total Sources: Principal Amount of Series 2019 Bonds $22,510,000.00 $66,075,000.00 $88,585,000.00 Amounts transferred from Trustee(1) – 1,796,863.66 1,796,863.66 Plus Original Issue Premium 2,872,296.80 13,131,123.05 16,003,419.85 TOTAL ESTIMATED SOURCES $25,382,296.80 $81,002,986.71 $106,385,283.51 Uses: Deposit to the Project Fund(2) $25,100,000.00 – $25,100,000.00 Redemption of the Refunded Series 2008A Bonds(3) – $32,882,040.11 32,882,040.11 Deposit in Refunding Escrow(3) – 39,052,497.29 39,052,497.29 Transfer to Termination Fund(4) – 8,523,000.00 8,523,000.00 Costs of Issuance(5) 159,259.67 313,536.35 472,796.02 Underwriters’ Discount 123,037.13 231,912.96 354,950.09 TOTAL ESTIMATED USES $25,382,296.80 $81,002,986.71 $106,385,283.51 ______(1) Represents amounts held in funds and accounts under the supplemental indentures with respect to the Refunded Series 2008A Bonds and Refunded Taxable Series 2010B Bonds. (2) See “PLAN OF FINANCE–Capital Improvements.” (3) See “PLAN OF FINANCE–Refunding of the Refunded Series 2008A Bonds” and “–Refunding of the Refunded Taxable Series 2010B Bonds.” (4) To pay the Termination Payment to the Series 2008A Bonds Swap Provider. (5) Includes legal, financing and consulting fees, rating agency fees, fees related to printing costs, the Verification Agent, the Swap Advisor, the Bidding Agent, and other miscellaneous expenses related to the issuance of the Series 2019 Bonds and the transactions described in “PLAN OF FINANCE.”

THE SERIES 2019 BONDS

General

The Series 2019 Bonds are being issued in fully registered form, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). DTC will act as securities depository of the Series 2019 Bonds. Individual purchases of ownership interests in the Series 2019 Bonds will be made in book-entry form only in denominations of $5,000 or any integral multiple thereof.

The Series 2019 Bonds will be dated the date of their initial delivery and will bear interest at the rates and mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. Interest on the Series 2019 Bonds is payable semiannually on February 1 and August 1 in each year, commencing February 1, 2020 (each, an “Interest Payment Date”), calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Series 2019 Bonds is payable on each Interest Payment Date to the Owners of the Series 2019 Bonds as of the close of business on the Record Date in respect of such Interest Payment Date. “Record Date” means, with respect to the Series 2019 Bonds, the fifteenth day of the month preceding an Interest Payment Date. Principal of and redemption premium, if any, and interest on the Series 2019 Bonds are payable by the Trustee to DTC, which is obligated in turn to remit such principal and interest to DTC Participants for subsequent disbursement to the Beneficial Owners of the Series 2019 Bonds. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.”

7 Redemption Procedures for the Series 2019 Bonds

Selection of Series 2019 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series 2019 Bonds, the City shall select the Series 2019 Bonds to be redeemed, from all Series 2019 Bonds not previously called for redemption, in authorized denominations, by lot in any manner which the City in its sole discretion shall deem appropriate. The City shall promptly notify the Trustee in writing of the Series 2019 Bonds so selected for redemption. On or prior to any redemption pursuant to the Indenture, the City shall provide the Trustee with a revised sinking fund schedule.

Notice of Redemption of Series 2019 Bonds. The City shall notify the Trustee at least 45 days prior to the redemption date for Series 2019 Bonds. Notice of redemption of any Series 2019 Bonds shall be mailed by the Trustee, not less than 20 nor more than 30 days prior to the redemption date, (i) to the respective Owners of any Series 2019 Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee by first-class mail, (ii) to the Securities Depositories by facsimile and by first-class mail, (iii) to the Information Services by first-class mail, and (iv) to the Rating Agency. Notice of redemption shall be given in the form and in accordance with the terms of the Indenture.

Any notice of optional redemption of the Series 2019 Bonds may be conditional and if any condition stated in the notice of redemption is not satisfied on or prior to the redemption date, said notice will be of no force and effect and the City will not redeem such Series 2019 Bonds. The Trustee will within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled.

Partial Redemption of Series 2019 Bonds. Upon surrender of any Series 2019 Bond redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Series 2019 Bond of authorized denominations, and of the same maturity, equal in aggregate principal amount to the unredeemed portion of the Series 2019 Bond surrendered.

Effect of Redemption of the Series 2019 Bonds. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the redemption date on, the Series 2019 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Series 2019 Bonds (or portions thereof) so called for redemption shall become due and payable at the Redemption Price specified in such notice, together with interest accrued thereon to the date fixed for redemption, interest on the Series 2019 Bonds so called for redemption shall cease to accrue, said Series 2019 Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said Series 2019 Bonds shall have no rights in respect thereof except to receive payment of said Redemption Price and accrued interest.

Redemption Provisions for the Series 2019A Bonds

Optional Redemption. The Series 2019A Bonds shall be subject to redemption prior to their respective stated maturities, at the option of the City, from any source of available funds, as a whole or in part on any date (by such maturities as may be specified by the City and by lot within a maturity) on or after August 1, 2029, at a Redemption Price equal to 100% of the principal amount of Series 2019A Bonds called for redemption, plus accrued interest to the date fixed for redemption, without premium.

8 Mandatory Sinking Account Redemption. The Trustee shall establish and maintain within the Principal Fund a Sinking Account for the Series 2019A Bonds maturing on August 1, 2044. The Series 2019A Bonds maturing on August 1, 2044 shall be redeemed (or paid at maturity, as the case may be), at a Redemption Price equal to 100% of the principal amount of Series 2019A Bonds called for redemption, plus accrued interest thereon to the date fixed for redemption, without premium, by the application of mandatory Sinking Account installments in the amounts and upon the Sinking Account Payment Dates established in the Indenture for the Series 2019A Bonds maturing on August 1, 2044, as follows:

Series 2019A 2044 Term Bond Sinking Account

Mandatory Sinking Account Payment Date Mandatory Sinking (August 1) Account Installments 2040 $1,150,000 2041 900,000 2042 940,000 2043 990,000 2044† 1,040,000 ______† Maturity.

The Trustee shall establish and maintain within the Principal Fund a Sinking Account for the Series 2019A Bonds maturing on August 1, 2049. The Series 2019A Bonds maturing on August 1, 2049 shall be redeemed (or paid at maturity, as the case may be), at a Redemption Price equal to 100% of the principal amount of Series 2019A Bonds called for redemption, plus accrued interest thereon to the date fixed for redemption, without premium, by the application of mandatory Sinking Account installments in the amounts and upon the Sinking Account Payment Dates established in the Indenture for the Series 2019A Bonds maturing on August 1, 2049, as follows:

Series 2019A 2049 Term Bond Sinking Account

Mandatory Sinking Account Payment Date Mandatory Sinking (August 1) Account Installments 2045 $1,090,000 2046 1,135,000 2047 1,180,000 2048 5,760,000 2049† 5,995,000 ______† Maturity.

9 Redemption Provisions for the Series 2019B Bonds

Optional Redemption. The Series 2019B Bonds maturing on or before August 1, 2029 are not subject to redemption prior to their maturity dates. The Series 2019B Bonds maturing on or after August 1, 2030 shall be subject to redemption prior to their respective stated maturities, at the option of the City, from any source of available funds, as a whole or in part on any date (by such maturities as may be specified by the City and by lot within a maturity) on or after August 1, 2029, at a Redemption Price equal to 100% of the principal amount of Series 2019B Bonds called for redemption, plus accrued interest to the date fixed for redemption, without premium.

Mandatory Sinking Account Redemption. The Trustee shall establish and maintain within the Principal Fund a Sinking Account for the Series 2019B Bonds maturing on August 1, 2040. The Series 2019B Bonds maturing on August 1, 2040 shall be redeemed (or paid at maturity, as the case may be), at a Redemption Price equal to 100% of the principal amount of Series 2019B Bonds called for redemption, plus accrued interest thereon to the date fixed for redemption, without premium, by the application of mandatory Sinking Account installments in the amounts and upon the Sinking Account Payment Dates established in the Indenture for the Series 2019B Bonds maturing on August 1, 2040, as follows:

Series 2019B 2040 Term Bond Sinking Account

Mandatory Sinking Account Payment Date Mandatory Sinking (August 1) Account Installments 2039 $2,285,000 2040† 2,350,000 ______† Maturity.

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DEBT SERVICE SCHEDULES The following table sets forth the semi-annual debt service schedules for the Series 2019 Bonds.

Series 2019A Bonds Series 2019B Bonds Date Principal Interest Total Principal Interest Total Total 2/1/2020 – $581,634.72 $581,634.72 – $1,819,646.53 $1,819,646.53 – 8/1/2020 – 486,950.00 486,950.00 – 1,523,425.00 1,523,425.00 $4,411,656.25 2/1/2021 – 486,950.00 486,950.00 – 1,523,425.00 1,523,425.00 – 8/1/2021 – 486,950.00 486,950.00 $1,115,000 1,523,425.00 2,638,425.00 5,135,750.00 2/1/2022 – 486,950.00 486,950.00 – 1,495,550.00 1,495,550.00 – 8/1/2022 – 486,950.00 486,950.00 1,170,000 1,495,550.00 2,665,550.00 5,135,000.00 2/1/2023 – 486,950.00 486,950.00 – 1,466,300.00 1,466,300.00 – 8/1/2023 – 486,950.00 486,950.00 2,815,000 1,466,300.00 4,281,300.00 6,721,500.00 2/1/2024 – 486,950.00 486,950.00 – 1,395,925.00 1,395,925.00 – 8/1/2024 – 486,950.00 486,950.00 2,930,000 1,395,925.00 4,325,925.00 6,695,750.00 2/1/2025 – 486,950.00 486,950.00 – 1,322,675.00 1,322,675.00 – 8/1/2025 – 486,950.00 486,950.00 3,050,000 1,322,675.00 4,372,675.00 6,669,250.00 2/1/2026 – 486,950.00 486,950.00 – 1,246,425.00 1,246,425.00 – 8/1/2026 – 486,950.00 486,950.00 3,175,000 1,246,425.00 4,421,425.00 6,641,750.00 2/1/2027 – 486,950.00 486,950.00 – 1,167,050.00 1,167,050.00 – 8/1/2027 – 486,950.00 486,950.00 3,315,000 1,167,050.00 4,482,050.00 6,623,000.00 2/1/2028 – 486,950.00 486,950.00 – 1,084,175.00 1,084,175.00 – 8/1/2028 – 486,950.00 486,950.00 3,455,000 1,084,175.00 4,539,175.00 6,597,250.00 2/1/2029 – 486,950.00 486,950.00 – 997,800.00 997,800.00 – 8/1/2029 – 486,950.00 486,950.00 3,605,000 997,800.00 4,602,800.00 6,574,500.00 2/1/2030 – 486,950.00 486,950.00 – 907,675.00 907,675.00 – 8/1/2030 – 486,950.00 486,950.00 3,750,000 907,675.00 4,657,675.00 6,539,250.00 2/1/2031 – 486,950.00 486,950.00 – 813,925.00 813,925.00 – 8/1/2031 – 486,950.00 486,950.00 3,905,000 813,925.00 4,718,925.00 6,506,750.00 2/1/2032 – 486,950.00 486,950.00 – 716,300.00 716,300.00 – 8/1/2032 – 486,950.00 486,950.00 4,070,000 716,300.00 4,786,300.00 6,476,500.00 2/1/2033 – 486,950.00 486,950.00 – 614,550.00 614,550.00 – 8/1/2033 – 486,950.00 486,950.00 4,245,000 614,550.00 4,859,550.00 6,448,000.00 2/1/2034 – 486,950.00 486,950.00 – 508,425.00 508,425.00 – 8/1/2034 – 486,950.00 486,950.00 4,420,000 508,425.00 4,928,425.00 6,410,750.00 2/1/2035 – 486,950.00 486,950.00 – 397,925.00 397,925.00 – 8/1/2035 – 486,950.00 486,950.00 4,585,000 397,925.00 4,982,925.00 6,354,750.00 2/1/2036 – 486,950.00 486,950.00 – 306,225.00 306,225.00 – 8/1/2036 – 486,950.00 486,950.00 4,735,000 306,225.00 5,041,225.00 6,321,350.00 2/1/2037 – 486,950.00 486,950.00 – 211,525.00 211,525.00 – 8/1/2037 – 486,950.00 486,950.00 4,885,000 211,525.00 5,096,525.00 6,281,950.00 2/1/2038 – 486,950.00 486,950.00 – 113,825.00 113,825.00 – 8/1/2038 $1,180,000 486,950.00 1,666,950.00 2,215,000 113,825.00 2,328,825.00 4,596,550.00 2/1/2039 – 457,450.00 457,450.00 – 69,525.00 69,525.00 – 8/1/2039 1,150,000 457,450.00 1,607,450.00 2,285,000 69,525.00 2,354,525.00 4,488,950.00 2/1/2040 – 428,700.00 428,700.00 – 35,250.00 35,250.00 – 8/1/2040 1,150,000 428,700.00 1,578,700.00 2,350,000 35,250.00 2,385,250.00 4,427,900.00 2/1/2041 – 399,950.00 399,950.00 – – – – 8/1/2041 900,000 399,950.00 1,299,950.00 – – – 1,699,900.00 2/1/2042 – 377,450.00 377,450.00 – – – – 8/1/2042 940,000 377,450.00 1,317,450.00 – – – 1,694,900.00 2/1/2043 – 353,950.00 353,950.00 – – – – 8/1/2043 990,000 353,950.00 1,343,950.00 – – – 1,697,900.00 2/1/2044 – 329,200.00 329,200.00 – – – – 8/1/2044 1,040,000 329,200.00 1,369,200.00 – – – 1,698,400.00 2/1/2045 – 303,200.00 303,200.00 – – – – 8/1/2045 1,090,000 303,200.00 1,393,200.00 – – – 1,696,400.00 2/1/2046 – 281,400.00 281,400.00 – – – – 8/1/2046 1,135,000 281,400.00 1,416,400.00 – – – 1,697,800.00 2/1/2047 – 258,700.00 258,700.00 – – – – 8/1/2047 1,180,000 258,700.00 1,438,700.00 – – – 1,697,400.00 2/1/2048 – 235,100.00 235,100.00 – – – – 8/1/2048 5,760,000 235,100.00 5,995,100.00 – – – 6,230,200.00 2/1/2049 – 119,900.00 119,900.00 – – – – 8/1/2049 5,995,000 119,900.00 6,114,900.00 – – – 6,234,800.00 TOTAL $22,510,000 $25,688,784.72 $48,198,784.72 $66,075,000 $36,132,021.53 $102,207,021.53 $150,405,806.25

The following table sets forth the scheduled annual debt service obligations for the Outstanding Bonds (following issuance of the Series 2019 Bonds) and the Series 2019 Bonds. See Table 10 under the caption “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage.” Period Series 2019 Bonds Ending Outstanding Bonds(1)(2) Series 2019A Bonds(2) Series 2019B Bonds(2) Aggregate Fiscal Year August 1 Principal Interest(3) Total(3) Principal Interest Total Principal Interest Total Debt Service Total 2019 $2,430,000 $1,695,052 $4,125,052 – $581,635 $581,635 – $1,819,647 $1,819,647 $2,401,281 $6,526,333 2020 2,515,000 1,590,244 4,105,244 – 973,900 973,900 – 3,046,850 3,046,850 4,020,750 8,125,994 2021 1,365,000 1,502,225 2,867,225 – 973,900 973,900 $1,115,000 3,018,975 4,133,975 5,107,875 7,975,100 2022 1,430,000 1,432,350 2,862,350 – 973,900 973,900 1,170,000 2,961,850 4,131,850 5,105,750 7,968,100 2023 – 1,396,600 1,396,600 – 973,900 973,900 2,815,000 2,862,225 5,677,225 6,651,125 8,047,725 2024 – 1,396,600 1,396,600 – 973,900 973,900 2,930,000 2,718,600 5,648,600 6,622,500 8,019,100 2025 – 1,396,600 1,396,600 – 973,900 973,900 3,050,000 2,569,100 5,619,100 6,593,000 7,989,600 2026 – 1,396,600 1,396,600 – 973,900 973,900 3,175,000 2,413,475 5,588,475 6,562,375 7,958,975 2027 – 1,396,600 1,396,600 – 973,900 973,900 3,315,000 2,251,225 5,566,225 6,540,125 7,936,725 2028 – 1,396,600 1,396,600 – 973,900 973,900 3,455,000 2,081,975 5,536,975 6,510,875 7,907,475 2029 – 1,396,600 1,396,600 – 973,900 973,900 3,605,000 1,905,475 5,510,475 6,484,375 7,880,975 2030 – 1,396,600 1,396,600 – 973,900 973,900 3,750,000 1,721,600 5,471,600 6,445,500 7,842,100 2031 – 1,396,600 1,396,600 – 973,900 973,900 3,905,000 1,530,225 5,435,225 6,409,125 7,805,725 2032 – 1,396,600 1,396,600 – 973,900 973,900 4,070,000 1,330,850 5,400,850 6,374,750 7,771,350 2033 – 1,396,600 1,396,600 – 973,900 973,900 4,245,000 1,122,975 5,367,975 6,341,875 7,738,475 2034 – 1,396,600 1,396,600 – 973,900 973,900 4,420,000 906,350 5,326,350 6,300,250 7,696,850 2035 – 1,396,600 1,396,600 – 973,900 973,900 4,585,000 704,150 5,289,150 6,263,050 7,659,650 2036 – 1,396,600 1,396,600 – 973,900 973,900 4,735,000 517,750 5,252,750 6,226,650 7,623,250 2037 – 1,396,600 1,396,600 – 973,900 973,900 4,885,000 325,350 5,210,350 6,184,250 7,580,850 2038 205,000 1,391,475 1,596,475 $1,180,000 944,400 2,124,400 2,215,000 183,350 2,398,350 4,522,750 6,119,225 2039 315,000 1,378,475 1,693,475 1,150,000 886,150 2,036,150 2,285,000† 104,775 2,389,775 4,425,925 6,119,400 2040 390,000 1,360,850 1,750,850 1,150,000† 828,650 1,978,650 2,350,000†† 35,250 2,385,250 4,363,900 6,114,750 2041 3,170,000 1,271,850 4,441,850 900,000† 777,400 1,677,400 – – – 1,677,400 6,119,250 2042 3,335,000 1,109,225 4,444,225 940,000† 731,400 1,671,400 – – – 1,671,400 6,115,625 2043 3,510,000 933,713 4,443,713 990,000† 683,150 1,673,150 – – – 1,673,150 6,116,863 2044 3,700,000 744,450 4,444,450 1,040,000†† 632,400 1,672,400 – – – 1,672,400 6,116,850 2045 3,895,000 545,081 4,440,081 1,090,000† 584,600 1,674,600 – – – 1,674,600 6,114,681 2046 4,105,000 335,081 4,440,081 1,135,000† 540,100 1,675,100 – – – 1,675,100 6,115,181 2047 4,330,000 113,663 4,443,663 1,180,000† 493,800 1,673,800 – – – 1,673,800 6,117,463 2048 – – – 5,760,000† 355,000 6,115,000 – – – 6,115,000 6,115,000 2049 – – – 5,995,000†† 119,900 6,114,900 – – – 6,114,900 6,114,900 TOTAL $34,695,000 $36,352,733 $71,047,733 $22,510,000 $25,688,785 $48,198,785 $66,075,000 $36,132,022 $102,207,022 $150,405,806 $221,453,540 ______(1) Consists of the unrefunded Taxable Series 2010B Bonds and the Series 2017A Bonds. See “SECURITY AND SOURCES OF PAYMENT OF THE BONDS–Outstanding Parity Obligations and Reserve Funds for Other Series of Bonds.” For projected debt service coverage for the Bonds. See “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage–Table 10.” (2) The Refunded Series 2008A Bonds and the Refunded Taxable Series 2010B Bonds will be refunded from proceeds of the Series 2019 Bonds. See “PLAN OF FINANCE–Refunding of the Refunded Series 2008A Bonds” and “–Refunding of the Refunded Taxable Series 2010B Bonds.” (3) Interest on the Taxable Series 2010B Bonds is based on the actual interest without regard to the Subsidy Receipts. See “SECURITY AND SOURCES OF PAYMENT OF THE BONDS–Outstanding Parity Obligations and Reserve Funds for Other Series of Bonds.” † Sinking fund payment. †† Maturity.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

Pledge of Net Revenues Under the Indenture

The Bonds (including the Series 2019 Bonds) are revenue obligations of the City and are payable as to both principal, accreted value, and interest, and any premium upon redemption, exclusively from Net Revenues and from the other funds pledged under the Indenture. Net Revenues are pledged to secure the payment of the principal of, accreted value, redemption premium, if any, and interest on the Bonds and any Parity Debt in accordance with their terms, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. The Indenture pledges to secure the payment of the principal, accreted value and redemption premium, if any, and interest on the Bonds in accordance with their terms all amounts (including proceeds of the Bonds) held by the Trustee under the Indenture (except for amounts held in the Rebate Fund), subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. Said pledge constitutes a first lien on the Net Revenues and amounts in such funds and will be valid and binding from and after delivery by the Trustee of the Bonds or Parity Debt, without any physical delivery thereof or further act. See “–Additional Bonds and Parity Debt.”

The Net Revenues are pledged to the payment of Bonds and Parity Debt without priority or distinction of one over the other and the Net Revenues constitute a trust fund for the security and payment of the Bonds and Parity Debt; but nevertheless out of Net Revenues, certain amounts may be applied for other purposes as provided in the Indenture.

Out of Net Revenues, there shall be applied as set forth in the Indenture all sums required for the payment of the principal of (including any premium thereon) and interest on the Bonds and all Parity Debt, together with any reserve fund requirements with respect thereto. All remaining Net Revenues, after making the foregoing allocation, shall be available to the City for all lawful purposes of the Enterprise. The pledge of Net Revenues made in the Indenture shall be irrevocable until all of the Bonds and all Parity Debt are no longer outstanding.

The term “Net Revenues” is defined under the Indenture to mean, with respect to any period, the amount of the Gross Revenues received during such period less the amount of Operating Expenses becoming payable during such period.

The term “Gross Revenues” is defined under the Indenture to mean all gross income and revenue received by the City from the ownership and operation of the Enterprise, including (i) all fees and charges received by the City for the services of the Enterprise, (ii) all other income and revenue howsoever derived by the City from the ownership and operation of the Enterprise or arising from the Enterprise, (iii) all sums deposited, or required by the Indenture to be deposited, in the Wastewater Fund established under the Indenture including the Subsidy Receipts (defined below), and (iv) amounts transferred to the Wastewater Fund from the Rate Stabilization Fund pursuant to the Indenture; but excluding (a) the proceeds of any ad valorem property taxes received by the City to pay debt service on any outstanding obligations of the City, and (b) any contributed capital (other than connection fees).

The term “Operating Expenses” is defined under the Indenture to mean, for the then current fiscal year, the reasonable and necessary costs of maintaining and operating the Enterprise, calculated on the basis of generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, but excluding (a) depreciation, replacement and obsolescence charges or reserves therefor or other bookkeeping entries of a similar nature, and (b) Debt Service.

13 “Parity Debt” is defined under the Indenture to mean any indebtedness, installment sale obligation, lease obligation or other obligation of the City for borrowed money or certain designated payments under a Public Finance Contract designated as Parity Debt (a “Parity Public Finance Contract”) having an equal lien and charge upon the Net Revenues, therefore payable on a parity with the Bonds (whether or not any Bonds are Outstanding).

Outstanding Parity Obligations and Reserve Funds for Other Series of Bonds

Outstanding Bonds. The pledge of Net Revenues under the Indenture securing payment of the Series 2019 Bonds is on a parity with a pledge of Net Revenues securing the Parity Obligations. See also “–Outstanding Parity Obligations.” The obligation of the City to reimburse the Series 2008A Bonds Letter of Credit Bank for draws on its Series 2008A Bonds Letter of Credit is also secured by a pledge of Net Revenues on a parity with the Bonds as Parity Debt.

The Taxable Series 2010B Bonds were issued as “Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”), the interest on which is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The Recovery Act provided for a cash subsidy (the “Subsidy Receipts”) from the United States Treasury equal to 35% of the interest payable on such Taxable Series 2010B Bonds. Subsidy Receipts constitute Gross Revenues, which are deposited into the Wastewater Fund for payment of principal of and interest on the Taxable Series 2010B Bonds. Beginning in 2013, the subsidy has been reduced in each year by varying sequestration percentages, ranging from a low of 6.2% in Federal Fiscal Year 2018-19 to a high of 8.7% in 2013. The City is obligated to make all payments of principal and interest on the Taxable Series 2010B Bonds from Net Revenues whether or not it receives the Subsidy Receipts. See “CERTAIN RISKS TO BONDHOLDERS–Risks Related to Subsidy Receipts for the Taxable Series 2010B Bonds.”

Series 2008A Bonds Swap Agreement. In connection with the issuance of the City’s Wastewater Revenue Bonds, Series 2006B (the “Series 2006B Bonds”), the City entered into an interest rate swap (the “Original Swap Agreement”) with Bear Stearns Capital Markets, Inc. (“Bear Stearns”), which the City and JP Morgan, as successor to Bear Stearns, elected to maintain in effect with respect to the Series 2008A Bonds following the refunding of the Series 2006B Bonds with the proceeds of the Series 2008A Bonds.

14 On November 19, 2009, the City terminated the Original Swap Agreement and entered into the Series 2008A Bonds Swap Agreement with the Series 2008A Bonds Swap Provider.

Pursuant to the Series 2008A Bonds Swap Agreement, the Series 2008A Bonds Swap Provider pays the City an amount equal to 63.42% of USD-LIBOR-BBA plus 22 basis points, and the City pays the Series 2008A Bonds Swap Provider an amount equal to 3.897%, measured on a notional amount equal to the initial principal amount of the Series 2008A Bonds, which amount reduces simultaneously with the scheduled amortization of the Series 2008A Bonds. The obligations of the Series 2008A Bonds Swap Provider are not insured and there is no requirement for posting of collateral. The scheduled termination date for Series 2008A Bonds Swap Agreement is August 1, 2037, unless terminated earlier.

On July 12, 2017, the Series 2008A Bonds were remarketed and are supported by the Series 2008A Bonds Letter of Credit.

Following the issuance of the Series 2019 Bonds and the redemption of the Refunded Series 2008A Bonds, the Series 2008A Bonds Swap Agreement and the Series 2008A Bonds Letter of Credit will each be terminated.

Outstanding Parity Obligations. Following the issuance of the Series 2019 Bonds, the outstanding Parity Obligations payable from Net Revenues will consist of the following Bonds:

Final Maturity Date Bonds Principal Amount (August 1) Taxable Series 2010B $2,385,000 2020 Series 2017A Bonds 32,310,000 2047

See “PLAN OF FINANCE–Refunding of the Refunded Series 2008A Bonds” and “–Refunding of Refunded Taxable Series 2010B Bonds.

Reserve Funds for Other Series of Bonds. The Taxable Series 2010B Bonds are secured by the Series 2010 Reserve Fund, which is established as a Series Reserve Fund.

No Reserve Fund. The Series 2019 Bonds, the Series 2008A Bonds, and the Series 2017A Bonds are not secured by any reserve accounts, including without limitation, the Parity Reserve Fund or the Series 2010 Reserve Fund.

Flow of Funds

In order to carry out and effectuate the obligation of the City contained in the Indenture to pay the Bonds, so long as any Bonds are Outstanding, the City covenants and agrees in the Indenture that all Gross Revenues, when and as received, will be received, deposited and held by the City in the Wastewater Fund and will be accounted for through and held in trust in the Wastewater Fund, and the City shall have no beneficial right or interest in any of such moneys except only as provided in the Indenture. The City covenants and agrees in the Indenture to maintain the Wastewater Fund at all times so long as any Bonds shall be Outstanding under the Indenture. All Gross Revenues and Net Revenues, whether held by the City or deposited with the Trustee, all as provided in the Indenture, shall nevertheless be disbursed, allocated, and applied solely to the uses and purposes set forth in the Indenture.

15 All amounts in the Wastewater Fund required to pay Operating Expenses of the Enterprise will be applied for such purpose from time to time by the City. So long as any Bonds are Outstanding, the City will transfer the remaining moneys in the Wastewater Fund to the Trustee as required for deposit into the following respective funds (each of which the Trustee will establish, maintain and hold in trust for the benefit of the Owners of the Bonds) in the following amounts, and in the following order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lack of Net Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority; provided that on a parity with such deposits the Trustee may set aside or transfer amounts with respect to outstanding Parity Debt as provided in the proceedings for such Parity Debt (which will be proportionate in the event such amounts are insufficient to provide for all deposits required as of any date to be made with respect to the Bonds and such Parity Debt):

Interest Fund. The City will transfer to the Trustee and the Trustee will set aside in the Interest Fund on or before the third Business Day prior to each interest payment date an amount equal to the interest becoming due and payable on the Outstanding Bonds (excluding interest for which there are moneys on deposit in the Interest Fund from the proceeds of any Series of Bonds or other source to pay such interest).

Principal Fund; Sinking Accounts. The City will transfer to the Trustee and the Trustee will set aside in the Principal Fund on or before the third Business Day prior to each principal or mandatory sinking fund payment date an amount equal to (i) the amount of Bond Obligation becoming due and payable on the Outstanding Serial Bonds, plus (ii) the mandatory sinking fund payments to be paid into the respective Sinking Accounts for the Term Bonds; provided that if the City certifies to the Trustee that any principal payments are expected to be refunded on or prior to their respective due dates or paid from excess amounts on deposit in the Parity Reserve Fund or other bond reserve fund upon such payment, no amounts need be set aside towards such principal to be so refunded or paid. All of the aforesaid mandatory sinking fund payments will be made without priority of any payment into any one such Sinking Account over any other such payment.

Parity Reserve Fund and Reserve Funds for a Series of Bonds. Upon the occurrence of any deficiency in the Parity Reserve Fund established pursuant to the Indenture or such other Reserve Fund as shall secure a Series of Bonds issued under the Indenture as provided for in a Supplemental Indenture (a “Series Reserve Fund”), the City shall immediately transfer to the Trustee and the Trustee shall set aside in the Parity Reserve Fund, the Series Reserve Fund, or both Funds on a pro rata basis an amount equal to the aggregate amount of each unreplenished prior withdrawal from the Parity Reserve Fund or Series Reserve Fund until there is on deposit in the Parity Reserve Fund and the Series Reserve Funds amounts equal to the Reserve Fund Requirements as provided for in the Indenture, or, with respect to a Series Reserve Fund, as provided for in the Supplemental Indenture creating such Fund. Any amount transferred to the Trustee shall be applied first to pay or reinstate any draws on any Credit Facility issued to support the Parity Reserve Fund on a pro rata basis. The Series 2019 Bonds are not secured by the Parity Reserve Fund or a Series Reserve Fund.

Net Revenues in the Wastewater Fund after the foregoing transfers described above, will be used and applied by the City toward the payment of fees and other amounts owed to any Applicable Credit Providers relating to Credit Facilities (including Credit Facility issued to support the Parity Reserve Fund), the payment of fees and other amounts owed to the providers of any Public Finance Contract Insurance Policies and the purchase of Bonds as and when and at such prices as it may determine.

Net Revenues in the Wastewater Fund after the foregoing transfers described above, will be used and applied by the City toward the payment of termination payments due under any Parity Public Finance Contracts.

16 Any Net Revenues remaining in the Wastewater Fund after the foregoing transfers described above, except as otherwise provided in a Supplemental Indenture, will be held free and clear of the Indenture by the City and it may use and apply such Net Revenues for any lawful purpose of the Enterprise.

If, two business days prior to any principal payment date, interest payment date or mandatory sinking fund redemption date, the amounts on deposit in the Interest Fund and Principal Fund, including the Sinking Accounts therein, are insufficient to make such payments, the Trustee will immediately notify the City, by telephone or facsimile machine, of such deficiency and direct that the City transfer the amount of such deficiency to the Trustee on such payment date. The City has covenanted and agreed to transfer to the Trustee from any Net Revenues in its possession the amount of such deficiency on the principal, interest or mandatory redemption date referenced in such notice.

No Reserve Fund

No debt service reserve fund will be established under the Indenture for the Series 2019 Bonds.

Rate Covenant

The City has covenanted that it will fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year which (together with other funds accumulated from Gross Revenues and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, and without regard to transfers from the Rate Stabilization Fund pursuant to the Indenture to pay the sum of the following amounts (i) all Operating Expenses estimated by the City to become due and payable in such Fiscal Year, (ii) the Debt Service on the Outstanding Bonds and any Parity Debt becoming due and payable during the Bond Year which commences in such Fiscal Year, (iii) all other payments required for compliance with the Indenture and the instruments pursuant to which any Parity Debt will have been issued; and (iv) all payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues or Net Revenues. In addition, the City has covenanted that it will fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year which are sufficient to yield Net Revenues (taking into account transfers from the Rate Stabilization Fund pursuant the Indenture, if any, applicable to such Fiscal Year) during such Fiscal Year equal to at least 1.25 times the amount determined pursuant to the preceding clause (ii) above. The City may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce such fees and charges below those then in effect unless the Gross Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements described above. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–PROPOSITION 218” and “–Effect of Proposition 218 and of Possible General Limitations on Enforcement Remedies.”

Additional Bonds and Parity Debt

The City may at any time issue Additional Bonds or Parity Debt payable from Net Revenues and secured by the pledge made under the Indenture equally and ratably with the Bonds previously issued, provided that, among other requirements, the Debt Service Coverage Ratio, will not be less than, or was and will be at least equal to, 1.25:1.0, as demonstrated in a Certificate of the City delivered to the Trustee calculating such Debt Service Coverage Ratio in one of two ways as provided below:

17 (i) the Debt Service Coverage Ratio for the most recent Fiscal Year for which audited financial statements for the Enterprise are available (based on the Debt Service payable during the Bond Year which commenced in such Fiscal Year), calculated as of the date of sale of such additional Series of Bonds and including the Bonds and Parity Debt then Outstanding and such additional Series of Bonds, will not be less than 1.25:1.0; provided that in calculating the Debt Service Coverage Ratio:

(1) if rates, fees and charges fixed and prescribed for the Enterprise in effect on the date upon which such additional Series of Bonds will become Outstanding will be greater than those in effect during the most recent Fiscal Year for which audited financial statements are available, then the Net Revenues for said Fiscal Year may be augmented by 100% of the estimated increase in Net Revenues computed to accrue to the Enterprise in the first twelve months during which such rates, fees and charges will be in effect; and

(2) Net Revenues may be augmented by 100% of the projected increase in annual Net Revenues to be provided by additional facilities under construction (financed from any source) or to be acquired with the proceeds of the additional Series of Bonds then being issued;

or (ii) (1) the Debt Service Coverage Ratio for the most recent Fiscal Year for which audited financial statements are available (based on the Debt Service payable during the Bond Year which commenced in such Fiscal Year), including the Bonds and Parity Debt then Outstanding but not such additional Series of Bonds, was at least equal to 1.25:1.0; and (2) the Debt Service Coverage Ratio for each of the three full Fiscal Years (based on the Debt Service payable during the Bond Year which commenced in each such Fiscal Year) beginning with the first full Fiscal Year in which such additional Series of Bonds are issued (or, if later, the first full Fiscal Year in which less than 10% of the interest coming due on such additional Series of Bonds is to be paid from the proceeds of such additional Series of Bonds) is projected (based on approved rates, fees and charges) to be at least equal to 1.25:1.0. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE–Issuance of Bonds and Parity Debt.”

Notwithstanding the above, the Indenture further authorizes the issuance of Additional Bonds to refund any outstanding Bonds or Parity Debt, provided, that the Maximum Annual Debt Service with respect to any such refunding Bonds will not exceed 1.10 times the Maximum Annual Debt Service, as calculated under the Indenture, with respect to the Bonds or Parity Debt being refunded. See APPENDIX C– “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE–Issuance of Bonds and Parity Debt.”

Nothing in the Indenture prohibits or impairs the authority of the City to issue bonds or other obligations which are unsecured or which are secured by a lien on Net Revenues which is subordinate to the lien established under the Indenture, upon such terms and in such principal amount as the City may determine. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE–Issuance of Bonds and Parity Debt.”

Rate Stabilization Fund

The City covenants under the Indenture to maintain and hold a Rate Stabilization Fund. The City may deposit Net Revenues or any other lawfully available funds in the Rate Stabilization Fund as the City may determine, provided, that deposits for each Fiscal Year may be made until (but not after) 120 days following the end of such Fiscal Year. The City may withdraw amounts from the Rate Stabilization Fund for inclusion in Gross Revenues for any Fiscal Year, but only until (but not after) 120 days after the end of such Fiscal Year. All interest earnings on deposits in the Rate Stabilization Fund shall be withdrawn and deposited in the Wastewater Fund and accounted for as Gross Revenues. Withdrawals from the Rate

18 Stabilization Fund may be made at any time by the City for any lawful purpose of the Enterprise. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE–Net Revenues.”

THE WASTEWATER ENTERPRISE

Overview

The Wastewater Enterprise (hereafter referred to as the “Enterprise”) is one of three utilities maintained and operated by the City. The two other utilities are storm sewer and cable television. As of January 1, 2019, the Enterprise provided sewer services to approximately 18,246 of the 27,004 residential parcels located within the City and, in addition, provided services 1,349 industrial and commercial parcels located in the City. See “–Customer Base.”

The Enterprise is comprised of a sanitary sewer collection system (the “Collection System”), a wastewater treatment plant (the “Treatment Plant”), and the disposal system. The Collection System consists of approximately 183 miles of sanitary sewer collection pipes and 13 wastewater lift stations. The Treatment Plant is located on an approximately 30-acre site in the southwest portion of the City at 601 Canal Boulevard. The current permitted capacity of the Treatment Plant for primary treatment is 40 (“mgd”) and for secondary treatment is 16 mgd for average day maximum month flow, and 20 mgd for peak wet weather flow. For a map showing the Treatment Plant and other facilities within the Enterprise, see Figure 1 on the following page.

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Figure 1 Map Showing the Treatment Plant and Other Enterprise Facilities

Service Area

The service area of the Enterprise coincides with the boundaries of the Richmond Municipal Sewer District No. 1 (“District No. 1”), which was created by the City in 1956. The service area of the Enterprise comprises approximately 14 square miles of the total approximately 33.7 square-mile land area of the City and corresponds to the original boundaries of the City as they existed in 1905. The Stege Sanitary District (the “Stege District”) and the West County Wastewater District (the “West County District”) provide sewer services to portions of the City that are not serviced by the Enterprise. These areas were originally outside the boundaries of the City and, since annexation of these areas to the City, have continued to be served by those districts. In 1977, the City, District No. 1 and the West County District formed the West County Agency, a joint powers agency, which constructed a 72-inch joint outfall pipe and other facilities jointly used by the City, District No. 1 and the West County District.

Figure 2 on the following page sets forth a map of the service area of the Enterprise.

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Figure 2 Map of the Service Area of the Enterprise

History

The Treatment Plant was initially constructed in 1953 as a primary treatment facility. In 1967 it was expanded to include secondary treatment. Smaller upgrade projects have been completed since that time, including the construction of a third circular clarifier in 1990. Wet weather diversion structures and various improvements, including expansion and modernization of the existing laboratory and construction of an emergency generator and fuel storage system, were added in the 1980s and early 1990s. Until 1999, the facilities of the Enterprise generally had an average age of 60 years, with many facilities nearing the end of their useful lives; the Treatment Plant had little automation and process control was mostly manual. However, beginning in 1999 major rehabilitation and renovation improvements to the Enterprise were undertaken and are continuing. See “–Capital Improvement Program” and “–Facilities Description– Collection System.”

City Management

Key members of the City staff responsible for the operation and financial management of the Enterprise include the officials listed below. Substantially all operations of Enterprise are managed by Veolia. See “–Management of the Enterprise by Veolia.”

Carlos Martinez, City Manager. Carlos Martinez was appointed the City Manager in October 2018. Prior to joining the City, he served as the City Manager for the City of East Palo Alto for over four years. Mr. Martinez has worked in the public sector since 1999, working for the City of Hayward as its Economic Development Manager, and the City of East Palo Alto, where, prior to being appointed City Manager, he was the Economic Development and Redevelopment Director. Mr. Martinez earned a degree in Architecture from the Autonomous Metropolitan University of Mexico City in 1981, and master’s degrees in Architecture and City Planning from the University of California, Berkeley.

Belinda Warner, Director of Finance and Treasurer. Belinda Warner began her long professional career with the City in 2000, starting as an accountant, and then senior accountant, in the Finance Department, then moved to the Police Department in 2012 and progressing upwards to become Finance Manager for the Police Department beginning in 2014. She became Director of Finance for the City in March 2015. Ms. Warner earned a bachelor’s degree from the University of Phoenix in 2000 and a masters of business administration from Golden Gate University in 2004.

Ryan Smith, Director of Water Resource Recovery. Ryan Smith began his professional career as a wastewater treatment plant operator-in-training with the City of Santa Rosa, and rapidly promoted to a senior level operator. He then accepted a similar position with the City of Petaluma for the construction and startup of the City’s new treatment facility, as an operations supervisor with the Las Gallinas Valley Sanitary District, and then as an operations superintendent and plant manager for the City of San Mateo. Mr. Smith has been the wastewater department head since October 2015. He earned a bachelor’s degree in Agriculture from the BioResource and Agricultural Engineering Department at the California Polytechnic State University in San Luis Obispo.

Management of the Enterprise by Veolia

Summary of the Management Agreement. In 2002, the City and US Filter Operating Services, Inc., succeeded by Veolia Water North America Operating Services, Inc., which was converted to Veolia Water North America Operating Services, LLC (“Veolia”) entered into the City of Richmond Wastewater Treatment Facility Capital Improvements, Operations, Maintenance and Management Agreement, as amended (the “Management Agreement”), which provides, among other things, for Veolia to design and construct improvements to the Enterprise and to operate, maintain and manage the Treatment Plant during

23 the term of the Management Agreement. The Management Agreement has been amended to provide for the operation, maintenance and repair of the sewer collection system and storm drainage system, the preparation of sanitary sewer and storm drain master plans and completion of certain improvements to the pump stations pursuant to a settlement agreement. (See “–Regulatory Matters–Prior Noncompliance– Baykeepers Lawsuit”). Pursuant to the Management Agreement, the City provides all capital funding, at specified levels, and remains the owner of the Enterprise. Veolia subcontracts for the design, construction, and installation of all capital improvements for the Enterprise and operates and maintains the Enterprise at guaranteed costs to the City (exclusive of pass-through costs such as utilities) for the contract term, subject to maximum and minimum total compensation amounts set forth in the Management Agreement. The Management Agreement initially provided for a term that expired on May 14, 2022, with an option of the City to renew for up to two five-year periods and a mutual option to extend for an additional five-year period. In April 2018, the City Council approved, and the parties executed, a fifth amendment to the Management Agreement, that among other things, reduced the capital program management markup from 24.0% to 16.5% and extended the term of the contract through May 14, 2027.

Veolia’s responsibilities with respect to the sewer collection and storm drainage facilities include: (i) maintenance, including both emergency and scheduled maintenance; (ii) development and implementation of a capital improvement plan; and (iii) responsibility for all relevant customer service requirements related to operation of the collection system including response to routine and emergency calls and new service tap inspections. The City retains responsibility for enforcing its Industrial Pretreatment Program, performing all regulatory duties, sampling analysis and reporting associated with the collection system and performing long-term collection system and service area planning. Veolia’s responsibilities with respect to capital improvements to the collection system facilities include development of a comprehensive capital improvement program for the collection system and provision of turn-key services to implement a comprehensive Sanitary Collection System rehabilitation program in compliance with the draft Capacity, Management, Operations & Maintenance (“CMOM”) guidelines of the EPA. In the event that final CMOM guidelines differ materially from the preliminary guidelines issued by the EPA, the parties will treat such material difference as a “Change in Law” under the Management Agreement.

Operation of the treatment facilities is provided by Veolia using Veolia employees and contractors. Compliance with all regulatory requirements and a conditional effluent quality guarantee are provided by Veolia. Permitting and construction schedules are similarly guaranteed by Veolia. Future changes in laws and regulations (if any) are treated as a change in scope of services with Veolia permitted to obtain reimbursement for documented additional costs (capital or operational) necessary for compliance with the new regulations and requirements. Failure by Veolia to meet certain requirements of the contract may result in the imposition of liquidated damages by the City, subject to notice and cure provisions, in the manner and in the amount set forth in the Management Agreement.

In the Management Agreement, Veolia provides an effluent quality guaranty, subject to certain Uncontrollable Circumstances. Subject to certain exclusions, “Uncontrollable Circumstances” is defined in the Management Agreement to mean any act, event or condition that impacts the cost of performance of or materially and adversely affects the ability of either party to perform any obligation under the Management Agreement (except for payment obligations), if such act, event or condition is beyond the reasonable control and is not a result of a willful or negligent act, error or omission of failure to exercise reasonable diligence on the part of the party relying thereon, including, but not limited to, acts of God (excluding reasonably anticipated weather conditions for the geographic area of the Enterprise), landslide, earthquake, fire, explosion, flood, sabotage or similar occurrence, acts of a public enemy, extortion, war blockade or insurrections, riot or civil disturbance; changes in law; failures of appropriate governmental agencies or private utilities to provide and maintain utilities, interference in possession or performance of material services by or on behalf of a declared or asserted public emergency or condemnation or taking of any part of the Enterprise; strikes, work stoppages, or labor disputes other than those of employees, agents,

24 contractors, or subcontractors of Veolia; violations of the City’s industrial pretreatment program discharge limits of a quantity and quality that causes substantial disruption in the operations or biological activity of the Enterprise, provided Veolia undertakes best efforts to deal with the discharge. The effluent quality guarantee requires that influent to the Treatment Plant be within the raw wastewater parameters of the Treatment Plant’s design criteria and that the raw wastewater be free of hazardous and biologically toxic materials in quantities that exceed the maximums of the City’s laboratory and industrial pre-treatment program and the NPDES permit. Uncontrollable Circumstances that limit Veolia’s effluent guaranty include, among other things, acts of God, changes in law and labor disputes other than those of Veolia’s employees but does not include changes in general economic conditions, the financial condition of the City, Veolia or the Project Guarantor, or the consequences of Veolia error. Except in the event of Uncontrollable Circumstances, failure by Veolia to satisfy applicable law with respect to effluent limits may result in the imposition of liquidated damages in the manner and in the amount set forth in the Management Agreement.

All disputes arising out of or relating to the Management Agreement are subject first to non-binding negotiation, and, if unsuccessful, non-binding mediation, as conditions precedent to the submission of the dispute to mandatory, binding arbitration.

The City covenants in the Management Agreement to fix, establish, and revise from time to time the rates and charges for the Enterprise as necessary to provide sufficient revenues to pay amounts due under the Management Agreement. Such amounts include the capital improvement costs described above. The City’s obligation to pay Veolia the amounts as specified in the Management Agreement is a general, unsecured obligation and the City treats the payments to Veolia as Operating Expenses under the Indenture.

Veolia. The following information has been obtained from publicly available information on the Veolia website. The City believes such information to be reliable, however none of the City or the Underwriters take any responsibility as to the accuracy or completeness thereof and has not independently verified such information.

Veolia is a subsidiary of Veolia Environnement S.A. (the “Company”), a French public limited- liability company headquartered in Paris. The Company has three core businesses: water management, waste management, and energy services. The Company has over 171,000 employees worldwide, and manages over 2,800 wastewater treatment plants.

In North America, Veolia North America, Inc. has approximately 8,100 employees, including Canada, and serves more than 150 municipal clients. Representative Northern California local governments for which Veolia provides operations and maintenance (“O&M”) for wastewater treatment plant operations include Atwater, Burlingame, Discovery Bay, Hollister, Lathrop, Rio Vista, and Novato. Notable US engagements for which Veolia provides O&M services for wastewater treatment include Milwaukee, where Veolia operates and maintains two water reclamation facilities with combined capacity of 660 mgd, the 320-mile collection system, biosolids production facilities, and the 520 million gallon “Deep Tunnel” storage system. In Atlanta-Fulton County, Veolia operates and maintains the county’s wastewater assets, including three treatment facilities, 30 wastewater pump stations and one grinder station, and also provides maintenance services for other water-related assets. Veolia also provides educational programming at the 10,000 square-foot Johns Creek Environmental Campus, promoting water and wastewater educational opportunities with an emphasis on educating children about the bioscience/life-science industry.

25 Master Planning

Various master planning activities for both the Treatment Plant and Collection System have occurred since 2010. Veolia contracted with Carollo Engineers in 2010 to prepare a Wastewater Treatment Plant Master Plan; and again in 2016 to prepare a Facility Plan, which is an update to the 2010 Master Plan to include updated regulatory assumptions, current facility conditions, and a recycled water feasibility study. Additionally, Veolia contracted with Jacobs (formerly CH2M) to prepare a Biosolids and Energy Plan to outline a strategy for beneficial digester biogas use, external digester feedstocks (fats/oils/grease, food scraps, high strength waste, etc.), and a needed future dewatering facility for digested solids (“biosolids”).

Veolia contracted with West Yost Associates in 2011 to prepare a Sewer Collection System Master Plan. Veolia contracted with Vivian Housen and Associates in 2018 to prepare a sewage pump station Master Plan, as well as an updated master plan for the Collection System. See also “–Regulatory Matters– Prior Noncompliance–Settlement of Baykeeper Lawsuit.”

Capital Improvement Program

Pursuant to the Management Agreement, Veolia is responsible for preparation of master plans for the Enterprise. Planning for the Enterprise addresses the Collection System, the Treatment Plant and the disposal system. (See “–Facilities Description) For specific components of the plan, Veolia from time to time contracts with specialty engineering firms to assist in developing approaches to specific Enterprise components. Long-term planning includes recommendations for long-term projects that are anticipated to be needed through 2045, based on current understanding of anticipated Enterprise regulation and expected capacity needs.

In the framework of long-term master planning for the Enterprise, the City and Veolia develop on an annual basis, five-year capital improvement plans for the development, construction, installation and financing of improvements to the Enterprise. The Fiscal Year 2019-20 through Fiscal Year 2023-24 CIP (the “2019-20 through 2023-24 CIP”) includes approximately $175.4 million in projects necessary to upgrade the Enterprise to satisfy regulatory requirements, comply with 2018 Settlement Agreement, as well as meet current and future demand. For a description of the 2018 Settlement Agreement, see “–Regulatory Matters–Prior Noncompliance–Settlement of Baykeepers Lawsuit.” The projects in the 2019-20 through 2023-24 CIP consist of the following:

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26 Table 2 City of Richmond 2019-20 through 2023-24 Capital Improvement Program Projects

Estimated Fiscal Year Estimated of CIP Project Description Component Cost† Completion Pump Station Improvements Collection $1,424,031 2021-22 Macdonald and Virginia Sewer Capacity Collection 9,377,811 2020-21 1st Street Sewer Capacity Collection 20,659,490 2022-23 Ferry Point Pump Stations Replacement Collection 3,456,089 2021-22 Sanitary Sewer Manhole Rehabilitation Collection 1,250,000 Ongoing Critical Pipeline Rehabilitation Collection 12,500,000 Ongoing Cutting & Carlson, and Hoffman Sewer Capacity Collection 4,882,672 2019-20 Biosolids Dewatering and Sidestream Treatment Treatment Plant 32,010,245 2023-24 SCADA Upgrade Phase 1 Treatment Plant 2,091,000 2020-21 Sludge Thickener Facility Treatment Plant 5,156,389 2021-22 Rockslide Protection Treatment Plant 1,644,747 2024-25 WWTP Stormwater Diversion Treatment Plant 2,353,000 2024-25 Sodium Bisulfite System Replacement Treatment Plant 2,021,283 2021-22 Cogeneration and Digester Mixing Improvements Treatment Plant 1,515,661 2020-21 Digester Gas Facilities Repair Treatment Plant 967,361 2023-24 Influent Pump Station Safety Improvements Treatment Plant 340,572 2019-20 Solids Facilities Demolition Treatment Plant 2,567,170 2019-20 Grit/Screenings Facility, and Aeration System Upgrade Treatment Plant 44,857,291 2021-22 Rehabilitation and Replacement Program Treatment Plant 21,317,270 Ongoing Miscellaneous Expenditures (Capital and Program Management) 4,960,780 N/A TOTAL $175,352,862 ______† Based upon engineering estimates for design and construction. Source: City of Richmond.

Proceeds of the Series 2019 Bonds in the amount of approximately $25.1 million will be applied to fund 2019-20 through 2023-24 CIP projects, with the remaining funds anticipated to be derived from a combination of pay-as-you-go sources (approximately $35.90 million), the State Loan, and proceeds from the issuance of Additional Bonds (approximately $76.8 million). Such State Loan is anticipated to be secured by a pledge and lien on Net Revenues on a parity with the Series 2019 Bonds and other Bonds. See “PLAN OF FINANCE–Capital Improvements.”

Facilities Description

Overview. Operation of the Collection System, treatment and Disposal Systems is a 24-hour, seven days a week, 365-day a year activity. During Fiscal Year 2017-18, an average of 4.78 mgd average dry weather flow of wastewater originating from residential, commercial, industrial and institutional customers within the Service Area was treated at the Treatment Plant.

The City’s Enterprise consists of three major components: the Collection System, the Treatment Plant and the Disposal System. In addition, the City operates a Pretreatment Program designed to reduce pollutant sources.

27 Collection System. The Collection System includes approximately 183 miles of collection pipes and is estimated to have an average age of 66 years. Most pipes are six inches in diameter and are constructed of vitrified clay pipeline material. Due to the age and poor condition of the pipes in the majority of the Collection System, a lot of groundwater and rainwater enter the sewers through cracks and other structural defects during periods of wet weather – a condition known as inflow and infiltrations (known as “I & I”) – resulting in increased flows to the Treatment Plant. In addition, the Collection System also includes 13 sewage pumping stations, which lift wastewater throughout the sewer interceptors to the Treatment Plant. There are also two engineered overflow weirs (a control structure that permits measurement of water discharge) which discharge untreated water into the San Francisco Bay. These two structures now have inflatable dams inserted on the overflow weirs to prevent wastewater from entering the stormwater system and stormwater from entering the Collection System.

Pretreatment Program. The City has operated a pretreatment program (the “Pretreatment Program”) to stop pollution from overloading or passing through the Treatment Plant since 1979. This program monitors industrial wastewater discharged into the sanitary sewage collection system, and issues up to approximately 75 permits to wastewater dischargers within the Enterprise. As described under “–Service Area,” because not all businesses within the City discharge to the Enterprise, pretreatment inspection to businesses in the southern portion of the City served by the Stege District is provided by the East Bay Municipal Utilities District.

For more than 30 years, the Pretreatment Program has been involved with identification, reduction, and prevention of pollutants to the sanitary sewer and the storm drains from industrial, commercial and residential sources. The Pretreatment Program controls pollutants such as metals, cyanide, ammonia, and oil and grease, at the sources such that the pollutants: (i) do not pass through, by pass, or cause interference with the Treatment Plant processes; (ii) do not harm the health and safety of the workers at the Treatment Plant; and (iii) do not interfere with the integrity of biosolids such that biosolids can be applied towards beneficial uses, directly as soil amendment and fertilizer, and indirectly feedstock in the fabrication of value-added products. Currently, the biosolids are used as a capping soil in a sanitary landfill. The Pretreatment Program is designed to keep the metal content in the biosolids low, resulting in more economic disposal options of the solids. Cyanide is also a priority pollutant, and the program is always vigilant of cyanide discharge to the Collection System. Fats, oils and grease (“FOG”) in the sewers is also a major concern. Sewers blocked with FOG can cause overflows which are expensive in terms of clean-up costs, damage to property, and fines if they cause overflows to the storm collection system. The Pretreatment Program controls sources of FOG through its permitting process for commercial businesses, and public educational outreach.

Treatment Plant. The Treatment Plant provides primary and secondary treatment of raw wastewater that flows in from the collection system.

The 2019 NPDES Permit rates the peak capacity of the primary treatment facilities at the Treatment Plant at 40 mgd and the secondary treatment capacity at 16.0 mgd for average day maximum month flow and 20 mgd for peak hourly wet weather flow. The average annual dry weather flow at the Treatment Plant in during Fiscal Year 2017-18 was 4.78 mgd. Wet weather flows sometimes exceed the peak capacity for secondary treatment at the Treatment Plant. The excess primary treated effluent is diverted around the biological treatment units to an approximately five million gallon above-ground pre-stressed concrete wet weather storage tank. Once storage is at capacity, excess primary-treated effluent is blended with secondary-treated effluent. The combined flow is then disinfected and dechlorinated prior to discharge to the San Francisco Bay. The stored wastewater is treated through the secondary treatment facilities after wet weather flows subside and there is capacity in those units. The blended effluent is required to meet secondary treatment discharge limits.

28 Preliminary Treatment. Preliminary treatment at the Treatment Plant consists of screening debris larger than one inch, and grit removal of heavy smaller particles such as rock and sand.

Primary Treatment. Primary treatment consists of primary sedimentation to remove floating material, oils and greases, sand and silt not removed in preliminary treatment and organic solids heavy enough to settle in water. In two primary treatment tanks, suspended material in the wastewater is allowed to settle out. The settled material (referred to as “primary sludge”) is removed to digesters while the liquid effluent flows to the secondary treatment facilities.

Secondary Treatment. In secondary treatment, suspended and dissolved organic material is removed from the primary effluent by mixing it with biological organisms (“activated sludge”) and aerating the combined liquid in the tank. The resulting effluent then flows into secondary clarifiers where the activated sludge is allowed to settle out. This resulting “secondary sludge” is either recirculated to the aeration tanks for continuous treatment of the primary effluent, or removed for process control, while the remaining secondary effluent is transported to the chlorine contact basin for disinfection.

Disinfection and Dechlorination. Secondary effluent is conveyed to chlorine contact tanks for disinfection, where liquid sodium hypochlorite is used as the disinfecting agent. Effluent is then dosed with liquid sodium bisulfite to dechlorinate the Treatment Plant effluent, and is then mixed with the West County District treated effluent in the confluence structure before being discharged to the San Francisco Bay.

Anaerobic Digestion. Primary and secondary sludges are pumped to two heated and mixed tanks called digesters. Under anaerobic conditions, bacteria break down organic solids and produce methane and carbon dioxide gases. The digester gas is flared and biosolids are transported, via a six-inch, six-mile long diameter pipeline constructed by the West County Agency, to the drying beds located at and owned by the West County District. Dried biosolids are disposed of by the operator of the West Contra Costa County Landfill. See also “–Disposal System.”

Power Source. The Treatment Plant purchases electrical energy power from Pacific Gas & Electric (“PG&E”). In order to satisfy State requirements that all wastewater treatment facilities have an alternate source of power, the Treatment Plant is equipped with a standby diesel generator. The City is also a member of MCE (formerly Marin Clean Energy) and participates in its Deep Green that provides 100% program greenhouse gas-free, Green-e Energy certified wind and solar power produced within the State.

Disposal System. The combined outfall pipe, which transports treated secondary effluent from the West County District and the Enterprise to its discharge point, is jointly owned by the City (68% undivided interest) and the West County District (32% undivided interest). Effluent from the two entities meet at the confluence structure located west of the Treatment Plant. The combined effluent flows through the outfall pipe through the hills west of the Treatment Plant and then into a 1,000-foot-long, 72-inch outfall for discharge through a diffuser that extends 4,700 feet offshore of Point Richmond in the San Francisco Bay at a depth of 26 feet below mean lower water mark. The outfall risers are fitted with flexible rubber nozzles and marked by two navigation buoys in San Francisco Bay.

Biosolids are currently pumped from the Treatment Plant through a six-inch, six-mile pipeline to sludge drying lagoons and beds located at and owned by the West County District plant. Dried sludge is disposed of at the West Contra Costa County Landfill. Piping from the Treatment Plant is glass lined and is cathodically protected.

29 On February 16, 2010, the City entered into an eight-year lease with the West County District for continued use of the sludge ponds through December 31, 2017. In December 2016, the City and West County District amended the lease to extend the agreement to year 2025 with updated terms. The City is exploring alternative options to deal with sludge removal from the Treatment Plant. One alternative is to build dewatering facilities on the Treatment Plant site, which would also require side-stream treatment of centrate/filtrate for ammonia. Another alternative is to construct a joint-project with the West County District. After conducting a holistic biosolids and energy evaluation, preliminary estimates indicate that alternative on-site facilities could cost approximately $28.5 million, but no firm estimates or course of action have been determined and the City Council has not been presented with any recommended option, or approved any action.

Customer Base

Set forth in Table 3 is the number of parcels served by the Enterprise and the total annual revenues (excluding connection fees, fines, and violations) for Fiscal Years 2013-14 through 2017-18, and total budgeted revenues for Fiscal Year 2018-19. The Total Revenues shown below represents amounts collected for actual wastewater services only and differs from the amounts shown in Table 9–“Summary of Revenues, Expenses, Operating Expenses, and Changes in Fund Net Position.”

Table 3 City of Richmond Wastewater Enterprise Customers Served and Total Revenues Fiscal Years 2013-14 through 2017-18 and Budgeted for Fiscal Year 2018-19

Single Family Multi-Family Residential Residential Commercial/Industrial Fiscal Parcels Parcels Parcels Total Year Served Revenues Served Revenues Served Revenues Revenues(1) 2013-14 16,280 $10,305,240 1,964 $3,912,683 1,368 $3,904,555 $18,122,478 2014-15 16,275 10,302,075 1,958 3,889,269 1,367 3,968,357 18,159,701 2015-16 16,258 10,990,408 1,982 4,220,896 1,352 3,752,690 18,963,994 2016-17 16,263 11,741,886 1,983 4,571,889 1,347 3,449,463 19,763,238 2017-18 16,321 12,583,491 2,037 4,899,860 1,334 3,805,190 21,288,541 2018-19(2) 16,311 13,440,264 2,038 5,254,956 1,349 4,434,002 23,129,222 ______(1) Excludes development related and connection, fees, fines, and violation fees. (2) Budgeted. Source: City of Richmond.

The principal wastewater customers in the City served by the Enterprise for Fiscal Year 2017-18 and Fiscal Year 2018-19 are summarized in Table 4. For Fiscal Year 2018-19, the largest user will represent approximately 0.9% of Revenues of the Enterprise and the 10 largest users will collectively account for approximately 5.8% of Revenues.

Table 4 City of Richmond Wastewater Enterprise Principal Wastewater Customers Fiscal Year 2017-18 and Fiscal Year 2018-19

Fiscal Year 2017-18 Fiscal Year 2018-19 Total % of % of Total % of % of Customer Product/Service Charges Industrial Revenues Charges Industrial Revenues Atchison Village Mutual Homes Association (Multi-Family Residential Units) Home Owners Association $175,391 4.61% 0.82% $209,507 4.73% 0.91% Chevron USA Inc. Chevron Services Co (Chevron Refinery)† Energy Company 159,983 4.20 0.75 178,726 4.03 0.77 California Fats & Oils Inc. (AAK Products) Oil Processor/Supplier 138,825 3.65 0.65 172,337 3.89 0.75 Regents of University of Calif GS Management Co (US EPA) (Maple Leaf - Grace Baking) Bakery 135,735 3.57 0.64 140,505 3.17 0.61 Kaiser Foundation Hospitals Department of Taxation (Kaiser Hospital - Nevin) Hospital 117,507 3.09 0.55 125,355 2.83 0.54 California State of Facilities Management Section (DOHS) Laboratories 96,479 2.54 0.45 117,461 2.65 0.51 United States of America GSA-PBS Fin Mgmt Stf (9PAF) (Social Security) Federal Government 91,968 2.42 0.43 113,157 2.55 0.49 Bio-Rad Laboratories Inc. Jim Markgraf (Bio-Rad A - Regatta) Laboratories 87,733 2.31 0.41 105,795 2.39 0.46 Stephens & Stephens LLC Donald R Stephens (Blue Apron/Del Monte Fresh) Food Packaging 84,113 2.21 0.40 99,622 2.25 0.43 Edgar Donald L Tre (Super Coin-Op) Coin-operated Laundry 75,990 2.00 0.36 82,790 1.87 0.36 Subtotal $1,163,724 30.58% 5.47% $1,345,255 30.34% 5.82% All Others 20,124,817 94.53 21,783,967 94.18 Total $21,288,541 100.00% $23,129,222 100.00% ______† Represents the non-refinery operations of Chevron USA Inc. in the City. Source: City of Richmond.

Wastewater Flows

Table 5 presents the average monthly dry weather wastewater flows through the Treatment Plant for Fiscal Years 2013-14 through 2017-18 and estimated for Fiscal Year 2018-19.

Table 5 City of Richmond Wastewater Enterprise Wastewater Treatment Plant Average Monthly Dry Weather Flow Fiscal Years 2013-14 through 2018-19

Fiscal Year MGM† 2013-14 166.88 2014-15 148.95 2015-16 145.08 2016-17 157.60 2017-18 150.54 2018-19(1) 159.05 ______† All flows are expressed in millions of gallons per month (“MGM”). Source: City of Richmond.

Table 6 presents the average monthly wet weather flows through the Treatment Plant for Fiscal Years 2013-14 through 2018-19.

Table 6 City of Richmond Wastewater Enterprise Wastewater Treatment Plant Average Monthly Wet Weather Flow Fiscal Years 2013-14 through 2018-19

Fiscal Year MGM† 2013-14 177.24 2014-15 187.38 2015-16 218.62 2016-17 325.70 2017-18 211.60 2018-19(1) 301.12 ______† All flows are expressed in MGM. Source: City of Richmond.

Insurance on the Enterprise

The City maintains insurance with respect to the Enterprise which the City believes is reasonable for activities such as the Enterprise. For a summary of the insurance coverage maintained by the City, the insurers, self-insured retentions, policy limits, and deductibles see APPENDIX B–“COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2018–Note 14–Risk Management.”

Under the Indenture, the City is required to maintain insurance on the Enterprise as is usual and customary for wastewater treatment systems similar to the Enterprise, subject to certain limitations. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE–Insurance.” The City believes that 32 the above-referenced policies currently meet customary standards. The City reviews its insurance coverage from time to time and may make changes in the future to its insurance coverage as permitted under the Indenture.

Regulatory Matters

The Enterprise meets all known current regulatory permit requirements for its facilities and is in material compliance with the Porter-Cologne and Clean Water Acts. This section summarizes the regulatory framework governing the Enterprise and its operations. The City is not aware of any environmental or regulatory issues that could adversely impact its ability to provide wastewater service as described in this Official Statement.

History and Background. In 1969, the State adopted the Porter-Cologne Water Quality Act (the “Porter-Cologne Act”), creating the State’s current legal framework for the protection of water quality. This adoption was followed at the federal level by the Water Pollution Control Act Amendments of 1972 (the “Clean Water Act”). The Clean Water Act provided an aggressive timetable for eliminating pollution of the nation’s waters and established the basic secondary treatment requirements that 85% of pollutants, as defined in administrative regulations, be removed from sanitary wastewater. The Clean Water Act also required the issuance of discharge permits on a nationwide basis and established a federal grant program for construction of publicly owned wastewater facilities, subsequently replaced in California by the State’s revolving fund loan program. Although the U.S. Environmental Protection Agency (the “EPA”) has ultimate responsibility for administering the Clean Water Act, many functions have been delegated to the State. The administration of the current loan program and enforcement of regulations are a joint undertaking of the State Water Resources Control Board, the nine Regional Water Quality Control Boards, and EPA Region IX. The operation of the Enterprise is governed by the San Francisco Bay Regional Water Quality Control Board (the “SF Bay RWQCB”).

Federal and State Clean Water Act Permits. Each Regional Water Quality Control Board issues discharge permits under Section 402 of the Clean Water Act, which established the National Pollutant Discharge Elimination System (“NPDES”) permit system. These permits, issued for a five-year period, are also wastewater discharge requirements for the purposes of the Porter-Cologne Act.

The City operates the Enterprise under NPDES Permit No. CA 0038539 (Order No. R2-2019-003) issued by the SF Bay RWQCB in February 2019 and held by the West County Agency (a Joint Powers Agency whose members are (i) the West County Wastewater District, (ii) the City, and (iii) the Richmond Municipal Sewer District No. 1), which covers the wastewater discharges from the Enterprise and the West County District. Order No. R2-2019-003 rescinded the prior order issued in 2016, except for enforcement purposes. The current permit became effective on April 1, 2019, and expires on March 31, 2024. Order No. R2-2019-003 prescribes the effluent, receiving water, groundwater and pond disposal limitations for the Treatment Plant, requires additional testing, monitoring and limits for toxic substances, and requires the City to implement all feasible alternatives to reduce blending resulting from inflow and infiltration into the Collection System.

Compliance Status

Current Status. The City is currently in compliance with all permits, laws and regulations necessary to operate the Enterprise. The City and the Enterprise have all environmental and other approvals necessary to complete the Project, other than ministerial approvals expected in the ordinary course of construction. See, however, “–Prior Noncompliance–Settlement of Baykeeper Lawsuit.”

33 Prior Noncompliance

General. The City has been cited in the past for violations of its NPDES permits. According to data in the California Integrated Water Quality System, the City and the West County District have, at various times, discharged treated wastewater to the waters of the State that exceeded allowable effluent limitations for certain pollutants. According to these complaints, the violations were not serious, but were subject to mandatory minimum penalties. The mandatory minimum penalty for each violation to which a penalty applied is $3,000 per occurrence.

Settlement of Baykeeper Lawsuit. On September 25, 2005, the City was served with a complaint (Baykeeper and West County Toxics Coalition v. City of Richmond, West County Wastewater District, Veolia Water North America Operating Services and West County Agency, Case No. C-05-03829 MMC) (the “Baykeeper Lawsuit”) alleging that the City, the West County Agency, and Veolia violated the Clean Water Act and the effluent limitations contained in the terms and conditions of prior NPDES permits.

The parties entered into two settlement agreements; one on June 28, 2006, addressing alleged violations of effluent (discharge) limitations from the Treatment Plant; and the second on October 18, 2006 to facilitate prevention of sanitary sewer overflows (“SSOs”) that historically occurred and were occurring from the Collection System of the Enterprise. These two settlement agreements are referred together as the “2006 Settlement Agreement.” The 2006 Settlement Agreement was scheduled to terminate on December 16, 2016. However, in 2014, the 2006 Settlement Agreement was extended for an additional year to accommodate the extended construction schedule for the wet weather storage facility at the Treatment Plant that was needed to address SSO spills into the San Francisco Bay.

Construction of the wet weather storage facility was completed in 2015. However, heavy rains of 2016 and 2017 indicated that more work was needed to comply with the 2006 Settlement Agreement SSO reduction goals. In October 2017, Baykeeper filed a motion in federal court, seeking to enforce the terms of the 2006 Settlement Agreement. Following comprehensive and collaborative discussions, on June 4, 2018, the City and Baykeeper entered into a new settlement agreement that replaced the 2006 Settlement Agreement (the “2018 Settlement Agreement”). The 2018 Settlement Agreement is for a 10-year period and terminates on July 15, 2028.

The 2018 Settlement Agreement requires the City to: (i) satisfy SSO reduction performance goals each calendar year commencing in 2018 through 2027 (as summarized below), including the elimination of capacity-related SSOs from areas identified in the 2011 Master Plan, except those caused by storm events exceeding the 10-year, 24-hour storm event occurring across the Service Area with wet antecedent soil conditions (the “Design Storm”), on or before July 15, 2024, and elimination of all capacity-related SSOs from the Collection System on or before July 15, 2026, except those caused by storm events exceeding the Design Storm; (ii) complete capacity-related analysis and certain minimum capital improvement projects by no later than June 30, 2024, (iii) complete a Collection System condition assessment and risk assessment analysis which are to be updated annually; (iv) fund, complete, and construct repairs, replacements, and rehabilitation of certain projects specified in the 2018 Settlement Agreement; (v) revise the Operations and Maintenance Plan with Veolia on or before March 31, 2018 for the Collection System; (vi) implement certain improvements to the fats, oils, and grease (“FOG”) control program, and (vii) prepare an updated System Evaluation and Capacity Assurance Plan (a “SECAP”).

34 A summary of the 2018 Settlement Agreement SSO reduction performance goals is set forth below.

Maximum Number of SSOs Number of SSOs per 100 Miles of based on the Calendar Year Sewer Line/Year City’s 183.1 miles 2018 20 37 2019 15 27 2020 13 24 2021 11 20 2022 10 18 2023 9 16 2024 8 15 2025 7 13 2026 5 9 2027 5 9 ______Source: City of Richmond.

In compliance with the 2018 Settlement Agreement and pursuant to the Management Agreement, Veolia is undertaking taking various actions including but not limited to, performing annual Risk Assessment Analyses, implementing educational outreach relative to FOG, revising the Collection System operations and maintenance plan, updating the hot spot cleaning list annually, funding and constructing mandatory wet weather capacity improvement projects, and rehabilitating damaged pipes. The 2019-20 through 2023-24 CIP includes projects to satisfy the 2018 Settlement Agreement. See “–Capital Improvement Program” and “PLAN OF FINANCE.”

In 2018, the City had 13 SSOs. The City timely submitted and satisfied the SSO performance reduction goals for 2018 in the 2018 Settlement Agreement.

Regulatory Trends. Regulatory developments at the State and Federal level, as well as ongoing permit reissuance activities, may increase operation costs and capital needs of the Enterprise and may have an effect on the Enterprise operations and its revenues. In the future, additional constituents of concern (possibly including pollutants such as ammonia, nutrients, endocrine disrupting chemicals, human-made chemical/products) will likely be identified, and additional effluent limits may be added for wastewater discharges into the San Francisco Bay, as water quality objectives are developed for new compounds and improved analytical techniques become available. Additional source control measures, public education and outreach, and additional or advanced treatment processes may be necessary to achieve compliance.

Other Regulatory Agencies with Jurisdiction Over the Wastewater Enterprise. Other regulatory agencies with approval or oversight responsibilities over the siting, construction or operational impacts of the Enterprise on air, water and natural resources include the Bay Area Air Quality Management District, the Bay Conservation and Development Commission, the California Coastal Commission, the State Lands Commission, the California Department of Public Health, the National Marine Fisheries Services, the United States Fish and Wildlife Service, the California Department of Fish and Wildlife, and the U.S. Army Corps of Engineers.

Other Laws Affecting the Wastewater Enterprise. As a public agency the actions of the City with respect to the Enterprise must be constituent with the California Environment Quality Act and, where federal approvals or funding is involved, the National Environmental Policy Act. The federal Clean Air Act and the California Clean Air Act of 1988 also regulate emissions from treatment facilities. The Enterprise’s Treatment Plant meets present Bay Area Air Quality Management District standards. Other State or federal laws could have an impact on operations of, or construction of improvements to, the Enterprise. 35

FINANCIAL MATTERS RELATING TO THE ENTERPRISE

Billing and Collection Procedures

General. Sewer charges are collected by the County Treasurer-Tax Collector’s office on the real property tax bill of each parcel owner. The City receives sewer service charge collections from the County in three installments with approximately 95% received in December and April and the balance received in June of each Fiscal Year. The amount of sewer service charges on each parcel constitutes a lien against that lot or parcel as of noon on the first Monday in March immediately preceding the date of levy of the charge. If any sewer service charge is delinquent, the City may in its discretion either sell the parcel or file a civil action to recover such charges. However, the City receives sewer charge revenue from the County without regard to delinquencies as described under “–Teeter Plan.”

Teeter Plan. The City is located within a county that is following the “Teeter Plan” (defined below) with respect to property tax collection and disbursement procedures. Under this plan, a county can implement an alternate procedure for the distribution of certain property tax levies on the secured roll pursuant to Chapter 3, Part 8, Division 1 of the Revenue and Taxation Code of the State of California (comprising Section 4701 through 4717, inclusive), commonly referred to as the “Teeter Plan.”

Generally, the Teeter Plan provides for a tax distribution procedure by which secured roll taxes and assessments are distributed to taxing agencies within the county included in the Teeter Plan on the basis of the tax levy, rather than on the basis of actual tax collections. The County then receives all future delinquent tax payments, penalties and interest, and a complex tax redemption distribution system for all participating taxing agencies is avoided. While the County bears the risk of loss on delinquent taxes that go unpaid, it benefits from the penalties associated with these delinquent taxes when they are paid. In turn, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. The constitutionality of the Teeter Plan was upheld in Corrie v. County of Contra Costa, 110 Cal. App. 2d 210 (1952). The County was the first Teeter Plan county in the State when the Teeter Plan was enacted by the State Legislature in 1949.

The valuation of property is determined as of January 1 each year and equal installments of tax levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due May 15 and become delinquent August 31.

The County can elect to terminate its Teeter Plan for subsequent Fiscal Years, in which case the City would receive only the taxes and assessments actually collected and delinquent amounts when and if received. The County can also elect to terminate its Teeter Plan if more than 3% of the total tax levy is delinquent. The County has never terminated its Teeter Plan and has not informed the City of any plans to terminate its Teeter Plan.

Rates, Fees and Charges

The City’s wastewater charge has two components: a sanitary system charge and a storm program charge. The sanitary system charge covers the costs of administering, monitoring, operating, maintaining, improving and retiring the capital debts of the Enterprise. The storm program was developed to pay for the costs of administering, monitoring, operating, maintaining and improving the storm sewer system throughout the City and is not included in Revenues pledged to pay the principal of and interest on the Bonds. In addition, the City charges fees for the issuance of permits, site visit inspections, site monitoring, sampling and testing, and laboratory charges for users covered by the City’s wastewater permitting program.

36 Sewer Service Charges. Customers of the Enterprise are billed an annual sewer charge based on a user classification system.

Residential. Single unit residential users of the Enterprise are billed a flat annual charge per sewer service unit (“SSU”). Multifamily residential users are billed a slightly lower amount SSU.

Non-Residential. All non-residential users of the Enterprise (i.e. commercial and industrial users and schools) are billed annually based upon industrial waste unit (“IWU”) plus strength charges per pound of the five-day biochemical oxygen demand in mg/L and pounds of total suspended solids in mg/L in the effluent. In addition, all non-residential users are billed for actual cost of monitoring charges.

Current Rates. To satisfy funding requirements for expansion, improvement, maintenance and operating the Enterprise on July 28, 2015, the City Council approved a five-year rate ordinance that increased user charges by 6.8% per year for Fiscal Years 2015-16 through 2019-20, which became effective August 1, 2015.

Rates shown for single unit and multi-unit residences are flat rates per sewer service unit. Rates shown for commercial and industrial customers are minimum rates calculated based on metered usage per industrial waste unit, which is equal to a volume of industrial and domestic waste discharge of 1,000 cubic feet.

The City has covenanted in the Indenture to implement the capital expenditure program funded by Outstanding Bonds and to levy and collect rates and charges in conformance with the rate covenant in the Indenture. See “SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2019 BONDS–Rate Covenant.” The City believes that the current rate structure is consistent with State law, which requires generally that wastewater charges be proportionate to the operation, maintenance and replacement costs associated with providing service for each discharger or class of dischargers.

Set forth below in Table 7 are the annual adopted user charges for Fiscal Years 2015-16 through 2019-20 reflecting historic, current and adopted rates and charges.

Table 7 City of Richmond Wastewater Enterprise Annual User Rates and Charges Fiscal Years 2015-16 through 2020-21

Fiscal Year User Classification 2015-16 2016-17 2017-18 2018-19 2019-20 Single Unit Residential $676.00 $722.00 $771.00 $824.00 $880.00 Multi-Unit Residential 544.00 581.00 620.00 662.00 707.00 Commercial/Industrial Base Rate† 404.77 432.30 461.69 493.09 526.62 Biochemical Oxygen Demand per lb 1.04 1.11 1.19 1.27 1.35 Total Suspended Solids per lb 0.48 0.51 0.55 0.59 0.63 Industrial Waste Unit per each 49.04 52.38 55.94 59.74 63.81 ______† Charges shown are minimum charges and will vary depending upon the amount of wastewater discharge (measured per industrial waste unit), biochemical/oxygen/demand levels, total suspended solids content, and strength and volume of wastewater discharge. Source: City of Richmond.

Rate Increase Study. The current ordinance approved rates for the Enterprise through Fiscal Year 2019-20. The City Council has determined to retain the services of a rate consultant to assist in the development of proposed multi-year wastewater rate increases sufficient to fund the operations of the Enterprise, fund capital projects, and satisfy financial covenants and reserves. Following the preparation of a rate study, and in accordance with Proposition 218, the City will conduct a public hearing on the proposed wastewater rate increases. The preparation of the rate study and the public hearing are expected by completed by December 2019. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218.” See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218.”

Connection Fee

In addition to user charges, the City imposes a connection fee upon each owner connecting a building sewer with the Enterprise on or after July 1, 1992. The connection fee is payable at the time of issuance of a permit by the City to connect to the Collection System. For Fiscal Year 2018-19 the connection fee is $2,795 for each sewer service unit to be connected to the Collection System. The connection fees are Revenues and, as such are a part of the Net Revenues pledged to the payment of the Bonds, including the Series 2019 Bonds and any Parity Debt.

Comparison of Enterprise Charges

Table 8 shows average monthly residential service charges by various cities and agencies in the San Francisco Bay Area, as reported by each respective agency. Table 8 Comparative Monthly Wastewater Charges Average Single Family Residences

Fiscal Year Fiscal Year 2018-2019 2019-20 Percent Agency Charges Charges Change City of Berkeley/EBMUD(1) $116.28 N/A N/A City of Larkspur Sanitary District No. 1 - Marin County 98.17 $113.00(2) 15.1% Rodeo Sanitary District 80.21 83.03 3.5 City of San Mateo 80.33 91.78 14.3 Las Galinas Valley Sanitary District 74.83 77.25 3.2 City of San Rafael 71.75 N/A N/A City of Oakland/EBMUD(1) 66.79 N/A N/A City of Richmond 68.66 73.33 6.8 City of Crockett 65.75 N/A N/A City of Pinole 65.40 67.37 3.0 City and County of San Francisco 62.30 66.21 6.3 City of South San Francisco 60.83 62.08 2.1 City of Vallejo/Vallejo Flood and Wastewater District 48.78 54.78 12.0 West County Wastewater District 48.00 53.25 10.9 ______(1) EBMUD is the East Bay Municipal Utility District. (2) Proposed. Sources: Rates were provided by each respective agency.

Basis of Accounting

The City reports operations on a Fiscal Year basis (currently July 1 through June 30). The City maintains the Enterprise as a separate enterprise fund for accounting purposes.

Sources of Funds; Operating Costs

The following Table 9 sets forth the Enterprise’s audited summary of revenues and expenditures for Fiscal Years 2013-14 through 2017-18. For Fiscal Year 2017-18, of the approximately $22.4 million in sewer service charges received by the City, approximately $17.5 million (approximately 77.9%) was derived from residential parcels (single- and multi-family), and approximately $4.9 million (approximately 22.1%) came from industrial, commercial and other classifications. See “THE WASTEWATER ENTERPRISE– Customer Base–Table 3–Customers Served and Total Revenues.”

Table 9 City of Richmond Wastewater Enterprise Summary of Revenues, Expenses and Changes in Fund Net Position Fiscal Year Ended June 30

2013-14 2014-15 2015-16 2016-17 2017-18 Operating Revenues Sewer Service Charges(1) $18,566,311 $18,648,404 $19,757,863 $20,764,071 $22,447,439 Other (Fines and Violations) 2,880 385,002 0 3,854 0 TOTAL OPERATING REVENUES 18,569,191 19,033,406 19,757,863 20,767,925 22,447,439

Operating Expenses Salaries and Benefits 857,842 849,665 1,155,864 1,796,017 1,578,452 General and Administrative(2) 8,366,742 8,343,717 8,577,140 9,096,468 10,225,609 Maintenance 218,451 197 5,197 18,966 52,197 Depreciation 1,646,055 1,642,065 1,644,674 1,809,207 2,301,596 Other(3) 291,244 337,131 369,479 375,923 212,347 TOTAL OPERATING EXPENSES 11,380,334 11,172,775 11,752,354 13,096,581 14,370,201

OPERATING INCOME (LOSS) 7,188,857 7,860,631 8,005,509 7,671,344 8,077,238

Nonoperating Revenues (Expenses) Interest Income (263,339) (790,571) (3,104,869) 3,514,697 3,341,707 Interest (expense) (4,918,289) (4,792,833) (4,694,272) (4,624,54) (7,326,169) TOTAL NONOPERATING REVENUES (EXPENSES) (5,181,628) (5,583,404) (7,799,141) (1,109,457) (3,984,462)

Income (Loss) Before Contributions and Transfers 2,007,229 2,277,227 206,368 6,561,887 4,092,776

Capital contributions/grants 793,693 799,729 801,453 803,178 797,193

Change in Net Position 2,800,922 3,076,956 1,007,821 7,365,065 4,889,969

Beginning Net Position (Deficit), As Restated(4) 15,825,435 16,799,055 19,876,011 20,883,832 26,427,543

Ending Net Position (Deficit) $18,626,357 $19,876,011 $20,883,832 $28,248,897 $31,317,512 ______(1) Includes the sewer service charges amounts shown in Table 3 that are collected on the annual property tax bills, and plan check, permit, design review, inspection, and other miscellaneous wastewater fees. Excludes developer impact fees and connection fees. (2) Includes payments to Veolia pursuant to the Management Agreement, professional services, and utilities. See “THE WASTEWATER ENTERPRISE–Management of the Enterprise by Veolia.” (3) Includes primarily lease payments (approximately $200,000 annually) paid to the West County District for use of drying beds (see “–Facilities Description–Treatment Plant–Anaerobic Digestion.”), small equipment rental expenses, safety and office supplies, and other miscellaneous expenses. (4) During Fiscal Year 2014-15, the City implemented new accounting pronouncements, adopted revised accounting policies and made other corrections that resulted in restatements or adjustments to beginning net position or fund balance. For more information, reference is made to Note 9E of the City’s Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2018. Sources: City of Richmond Audited Financial Statements and the City of Richmond.

39 Management’s Discussion of Operating Results

Audited operating results for the Enterprise for Fiscal Years 2013-14 through 2017-18 are summarized in Table 9. Over this period, operating revenues increased by an annual average of approximately 4.8%; and maintenance and operating expenses increased by an annual average of approximately 5.2%.

Budget Process

Based primarily on the prior year’s expenditures, the annual Enterprise budget is developed by the Director of Water Resource Recovery for submission to the Finance Department and then the City Manager. Budgets for staffing levels, other operating costs, interfund transfers and capital expenditures are reviewed and approved by the City Council. The management of the Enterprise is held accountable for conformance to the approved budget.

Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage

Table 10 summarizes historical and projected revenues, operating expenses and debt service coverage ratios for the period beginning in Fiscal Years 2014-15 through 2017-18 (historical) and projections for Fiscal Years 2018-19 through 2022-23. In preparing the projections, the City has made certain assumptions with respect to capital needs and the condition of the existing Enterprise and conditions that may occur in the future. The projections in Table 10 are not necessarily indicative of future performance by the Enterprise and the City does not assume any responsibility for the failure of the Enterprise to meet such projections. In addition, certain assumptions with respect to future demand, costs, and available financing sources to the Enterprise are subject to change. If actual results for the Enterprise are less favorable then the results projected, or if the assumptions used in preparing such projections prove to be incorrect, then the amount of Net Revenues may be materially less than presented.

While the City believes these assumptions are reasonable for the purpose of the projections, they are dependent upon future events, and actual conditions may differ from those assumed.

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Table 10 City of Richmond Wastewater Enterprise Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage Fiscal Year Ending June 30

Historical Projected 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-2023 Operating Revenues Sewer Service Charges (base)(1) $18,648,404 $19,757,860 $20,764,071 $22,447,439 $23,389,641 $24,850,429 $26,187,009 $27,682,419 $29,282,509 Sewer Service Charges (growth from new connections)(2) – – – – – 33,229 208,977 675,276 895,766 Other 385,002 0 3,854 589,089 131,445 0 0 0 0 Nonoperating Revenues (Expenses) Capital Contributions/Grants(3) 799,729 801,453 803,178 797,193 787,053 311,877 9,125 0 0 Connection Fees(4) 220,842 115,650 313,651 456,353 204,930 802,165 559,000 715,520 559,000 Interest Revenue 69,779 75,313 106,075 1,283,994 203,053 536,622 325,430 769,193 604,500 TOTAL REVENUES 20,123,756 20,750,276 22,053,161 25,574,068 24,716,122 26,534,322 27,289,541 29,842,408 31,341,775 Maintenance and Operating Expenditures Salaries and Benefits(5) 849,665 1,155,864 1,796,017 1,578,452 1,730,027 1,858,719 1,934,123 2,012,858 2,095,081 General and Administrative 8,343,717 8,557,140 9,096,468 10,225,609 9,593,393 11,113,106 10,161,888 10,422,551 10,690,953 Maintenance 197 5,197 18,966 52,197 – – – – – Other Operating(6) 337,328 374,676 375,923 212,347 712,678 324,615 310,704 325,747 341,654 TOTAL EXPENDITURES 9,530,907 10,092,877 11,287,374 12,068,605 12,036,098 13,296,440 12,406,715 12,761,156 13,127,688 Net Revenues $10,592,849 $10,657,399 $10,703,455 $13,505,463 $12,680,024 $13,237,882 $14,882,826 $17,081,252 $18,214,087

Debt Service on Existing Bonds(7) $6,614,235 $6,593,376 $6,715,910 $7,999,008 $7,714,058 $4,125,052 $4,105,244 $2,867,225 $2,862,350 Debt Service on 2019A Bonds – – – – – 581,635 973,900 973,900 973,900 Debt Service on 2019B Bonds 1,819,647 3,046,850 4,133,975 4,131,850 Debt Service on Future Bonds(8) – – – – – – – 1,476,833 2,215,250 State Loan payments (Projected)(9) – – – – – – – – 1,604,065 TOTAL EXISTING AND PROJECTED DEBT SERVICE $6,614,235 $6,593,376 $6,715,910 $7,999,008 $7,714,058 $6,526,333 $8,125,994 $9,451,933 $11,787,415 Debt Service Coverage 1.60x 1.62x 1.59x 1.69x 1.64x 2.03x 1.83x 1.81x 1.55x Debt Service Coverage without Growth(10) N/A N/A N/A N/A N/A 1.90x 1.74x 1.66x 1.42x ______(1) Projected revenues include adopted Sewer Service Charge rate increase of 6.8% per year through Fiscal Year 2019-20 and assumes a Sewer Service Charge rate increase of 7.0% per year in Fiscal Years 2020-21 through 2022-23 (see “–Rates, Fees and Charges–Rate Increase Study” and “CERTAIN RISKS TO BONDOWNERS–Future Rate Increases”) and full funding of the 2019-20 through 2023-24 CIP projects. See “THE WASTEWATER ENTERPRISE–Capital Improvement Program.” (2) Reflects sewer service charge revenue increases derived from connections resulting from new development within the Service Area. See APPENDIX A–“CERTAIN ECONOMIC, DEMOGRAPHIC, AND FINANCIAL INFORMATION REGARDING THE CITY OF RICHMOND–ECONOMIC AND DEMOGRAPHIC INFORMATION.” (3) Represents Subsidy Receipts relating to the Taxable Series 2010B Bonds and reflects the expected defeasance of $36.48 million of the Refunded Taxable Series 2010B Bonds on June 26, 2019. See “PLAN OF FINANCE–Refunding of the Refunded Taxable Series 2010B Bonds.” (4) Projected connection fees reflect the City’s projections for pending residential, commercial and industrial development in the Service Area. See APPENDIX A–“CERTAIN ECONOMIC, DEMOGRAPHIC, AND FINANCIAL INFORMATION REGARDING THE CITY OF RICHMOND.” (5) Projections assume salaries and benefits at full staffing of 9.6 FTEs, 2% annual salary and benefits increases, and projected retirement contributions. (6) Includes maintenance costs, bond-related expenses (including letter of credit fees), and other expenses. Reductions in Fiscal Years 2019-20 through 2022-23 reflect projected full refunding of the Refunded Series 2008A Bonds and cancellation of the Series 2008A Letter of Credit, and elimination of remarketing fees related to the Refunded Series 2008A Bonds. (7) For Fiscal Years 2018-19 through 2022-23, represents debt service on the Series 2008A Bonds through their redemption date on June 26, 2019 (based upon the Series 2008A Bonds Swap Agreement rate equal to 3.897%), the Taxable Series 2010B Bonds that will remain outstanding following the issuance of the Series 2019 Bonds and that mature August 1, 2019 and 2020, and the Series 2017A Bonds. See “PLAN OF FINANCE–Refunding of the Refunded Series 2008A Bonds” and “–Refunding of the Refunded Taxable Series 2010B Bonds.” (8) Assumes the issuance of Additional Bonds in the amount of $42.0 million in Fiscal Year 2020-21 and $17.9 million in Fiscal Year 2022-23 at current interest rates amortized over 30 years. (9) Assumes receipt of the State Loan in the amount of approximately $36 million at an interest rate of 1.8% from the State Water Resources Control Board approved in 2019 and construction is completed in Fiscal Year 2021-22. See “THE WASTEWATER ENTERPRISE–Capital Improvement Program.” (10) Excludes Sewer Service Charges from new connections and Connection Fee revenue in calculating debt service coverage. Sources: City of Richmond for historical and projected revenues and expenses; Public Resources Advisory Group for projections of debt service; and Barclays Capital Inc. for the projected Series 2019 Bonds debt service.

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS

Article XIII B

At the statewide special election of November 6, 1979, the voters approved an initiative entitled “Limitation of Government Appropriations” which added Article XIII B to the California Constitution. Under Article XIII B, state and local governmental entities have an annual “appropriations limit” which limits the ability to spend certain monies which are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the “appropriations.” The “base year” for establishing such appropriation limit is the 1978/79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years.

Appropriations subject to Article XIII B generally include proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIII B includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion required an expenditure for additional services or which unavoidably make the providing of existing services more costly.

The City believes that the sewer service fees and charges it imposes for use of the Enterprise do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIII B.

Proposition 62

A statutory initiative (“Proposition 62”) was adopted by the voters voting in the State at the November 4, 1986 general election which (1) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax imposed by a local governmental entity on or after March 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988.

Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme

42 Court, in Santa Clara County Local Transportation Authority v. Guardino (“Guardino”), upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or City to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or City to impose any general tax. Guardino did not address the question of whether or not it should be applied retroactively.

Following the Guardino decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On December 15, 1997, the Court of Appeals for the State of California, Fourth Appellate District, in McBrearty v. City of Brawley, determined that (i) Guardino is to be applied retroactively to require voter approval of previously enacted taxes, and (ii) the three-year statute of limitations applicable to such taxes runs from the date of the Guardino decision (September 28, 1995). On June 4, 2001, the California Supreme Court released its decision in Howard Jarvis Taxpayers Association v. City of La Habra, et al. (“La Habra”) holding (i) that a public agency’s continued imposition and collection of a tax is an ongoing violation upon which the statute of limitations period begins anew with each collection and (ii) that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought.

Proposition 218

On November 5, 1996, the voters of the State approved Proposition 218, the so-called “Right to Vote on Taxes Act.” Proposition 218 added Articles XIII C and XIII D to the State Constitution, which contain a number of provisions affecting the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges.

Article XIII C. Article XIII C removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. In Bighorn-Desert View Water Agency v. Beringson (“Bighorn”), decided by the California Supreme Court on July 24, 2006, the petitioner sought to establish his right to reduce a local water agency’s water rates and fees and charges through use of the initiative power. In holding for the petitioner on this issue, the court stated that the absence of a restrictive definition of “fee” or “charge” in Article XIII C suggests that those terms include all levies that are ordinarily understood to be fees or charges, including all of the property-related fees and charges subject to Article XIII D.

Though the California Supreme Court did not arrive at an exact definition of such terms in Bighorn, it did determine that fees and charges that are fees and charges within the meaning of Article XIII D are necessarily fees and charges within the meaning of Article XIII C. See “–Article XIII D.” The Court held that Article XIII C authorizes the use of the initiative process to reduce water rate and other delivery charges but that it does not authorize use of the initiative power to impose a voter-approval requirement on future increases or new water delivery charges. The court declined to determine whether the initiative power is limited by other statutory provisions requiring that water service charges be set at a level that will pay system expenses and debt service since that issue was not before the court.

Consequently, the voters of the City could, by future initiative, seek to repeal or reduce any local tax, assessment, fee or charge, including the City’s sewer service fees and charges of the Enterprise, which are the source of Net Revenues pledged to the payment of debt service on the Series 2019 Bonds, the other Bonds, and any Parity Debt. Though the use of the initiative power is arguably limited in the case of levies directly pledged to bonded indebtedness, such as the fees and charges imposed by the Enterprise securing the Series 2019 Bonds and the other Bonds, there can be no assurance that the voters of the City will not seek to approve an initiative which attempts to reduce the fees and charges imposed by the Enterprise securing the Series 2019 Bonds, the other Bonds, and any Parity Debt.

43 Article XIII D. Article XIII D established procedural requirements for imposition of assessments, which are defined as any charge on real property for a special benefit conferred upon the real property. Standby charges are classified as assessments. Procedural requirements include the conducting of a public hearing and an election by mailed ballot, with notice to the record owner of each parcel subject to the assessment. The assessment may not be imposed if a majority of the ballots returned oppose the assessment, with each ballot weighted according to the proportional financial obligation of the affected parcel. The City does not currently impose standby charges or assessments for the Enterprise.

Article XIII D conditions the imposition or increase of any “fee” or “charge” upon there being no written majority protest after a required public hearing and voter approval for fees and charges other than for sewer, water, refuse collection services, and certain storm drainage fees. Article XIII D defines “fee” or “charge” to mean levies (other than ad valorem or special taxes or assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a “property-related service.” One of the requirements of Article XIII D is that before a property related fee or charge may be imposed or increased, a public hearing upon the proposed fee or charge must be held and mailed notice sent to the record owner of each identified parcel of land upon which the fee or charge is proposed for imposition. In the public hearing if written protests of the proposed fee or charge are presented by a majority of the owners of affected identified parcel(s), an agency may not impose the fee or charge.

In Richmond et al. v. Shasta Community Services District (“Richmond”), the California Supreme Court held that a water connection fee was not a “property-related” fee and charge subject to Article XIII D. However, in the opinion the California Supreme Court suggested in dicta that fees for ongoing water service through an existing connection were “property related” fees and charges imposed on a person as an incident of property ownership. The court addressed this issue directly in the Bighorn case discussed above. In its decision, the court relied on its discussion in Richmond to reach the conclusion that fees and charges for ongoing water service through an existing connection are “property-related” fees and charges imposed on a person as an incident of property ownership for purposes of Article XIII D whether the fees and charges are calculated based on usage or are imposed as a fixed monthly fee.

The City has complied with the procedures required by Article XIII D in connection with the increase in the sewer fees and charges described under the caption “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Rates, Fees and Charges” herein.

In addition to the procedural requirements of Article XIII D, under Article XIII D, all property related fees and charges, including those which were in existence prior to the passage of Proposition 218 in November 1996, must meet the following substantive standards:

(1) Revenues derived from the fee or charge cannot exceed the funds required to provide the property related service.

(2) Revenues derived from the fee or charge must not be used for any purpose other than that for which the fee or charge was imposed.

(3) The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership must not exceed the proportional cost of the service attributable to the parcel.

(4) No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges, whether characterized as charges or assessments, must be classified as assessments and cannot be imposed without compliance with Section 4 of Article XIII D (relating to assessments).

44 (5) No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services where the service is available to the public at large in substantially the same manner as it is to property owners.

The City believes that the sewer service fees and charges it imposes for use of the Enterprise comply with the foregoing standards.

Article XIII D provides that nothing in Proposition 218 will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development.

Further interpretation and application of Proposition 218 will ultimately be determined by the courts or through implementing legislation with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation.

Effect of Proposition 218 and of Possible General Limitations on Enforcement Remedies

The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues sufficient to pay the principal of and interest on the Series 2019 Bonds may be adversely affected by actions and events outside of the control of the City and may be adversely affected by actions taken (or not taken) under Article XIII C or Article XIII D by voters, property owners, taxpayers or payers of assessments, fees and charges. Furthermore, any remedies available to the owners of the Series 2019 Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the possible limitations on the ability of the City to comply with its covenants under the Indenture, the rights and obligations under the Series 2019 Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against municipal utilities in the State of California.

Based on the foregoing, in the event the City fails to comply with its covenants under the Indenture, including its covenants to generate sufficient Net Revenues, as a consequence of the application of Article XIII C and Article XIII D, or to pay principal of or interest on the Series 2019 Bonds, there can be no assurance that available remedies will be adequate to fully protect the interests of the owners of the Series 2019 Bonds.

Future Initiatives

Articles XIII B, XIII C and XIII D and Proposition 62 were adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time other initiatives could be proposed and adopted affecting the City’s Net Revenues or ability to increase sewer fees and charges.

CERTAIN RISKS TO BONDOWNERS

This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the Series 2019 Bonds. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the Series 2019 Bonds, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the Series 2019 Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to

45 obtain information essential to the making of an informed investment decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market value and/or in the marketability of the Series 2019 Bonds. There can be no assurance that other risk factors not discussed herein will not become material in the future.

System Demand

There can be no assurance that the demand for sewer services of the Enterprise will occur as described in this Official Statement. Reduction in levels of demand on such services could require an increase in rates or charges in order to comply with the rate covenant in the Indenture.

System Expenses

There can be no assurance that the City’s actual expenses will be consistent with the projections in this Official Statement. Increases in expenses including, but not limited to, personnel costs, regulatory compliance costs and changes in technology, could require an increase in rates or charges in order to comply with the rate covenant in the Indenture.

Risks Related to Subsidy Receipts for the Outstanding Taxable Series 2010B Bonds

The Taxable Series 2010B Bonds were issued as “Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009, signed into law on February 1, 2009 (the “Recovery Act”), the interest on which is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City receives the Subsidy Receipts with respect to the Taxable Series 2010B Bonds, which are Revenues under the Indenture. See “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Historical and Projected Revenues, Operating Expenses, and Debt Service Coverage.”

Failure by the City to comply with certain requirements applicable to “Build America Bonds” may result in a delay or forfeiture of all or a portion of the Subsidy Receipts and may cause the obligations represented by the outstanding Taxable Series 2010B Bonds to cease to be treated as “qualified bonds” either prospectively from the date of determination of a failure to comply with the requirements or retroactively to the date of issuance of the Outstanding Taxable Series 2010B Bonds. Should such an event occur the outstanding Taxable Series 2010B Bonds are subject to extraordinary optional redemption. Such circumstances could create an additional, or increased, obligation payable from Net Revenues.

In the past, the federal government has reduced the amount of the Subsidy Receipts through sequestration due to federal government’s financial condition. The City can provide no assurance that Subsidy Receipts may not be reduced or eliminated in the future due to sequestration, federal legislation, amendments to the Tax Code, court decisions or any other reason.

Failure to receive the Subsidy Receipts, or a reduction in the amount thereof, could have an adverse effect on Net Revenues available to repay the Bonds. The City is obligated under the Indenture to make all payments of principal of and interest on the Bonds whether or not the City receives any Subsidy Receipts.

Limited Recourse on Default

If the City defaults on its obligation to pay principal or interest on the Series 2019 Bonds, the Owners of not less than a majority in aggregate amount of the Series 2019 Bonds at the time outstanding have the right to accelerate the principal of all Series 2019 Bonds then outstanding and the accrued interest thereon. However, in the event of a default and such acceleration there can be no assurance that the City will have sufficient funds to pay the accelerated principal and accrued interest from Net Revenues.

46 If at any time there is a deficiency in Net Revenues available to pay the principal and interest on the Series 2019 Bonds, available Net Revenues are required to be applied on a pro rata basis for such purposes and any amounts due with respect to the Bonds and Parity Debt, amounts required to replenish any reserve fund established for the Bonds and Parity Debt or Credit Facility Obligations, then under the Indenture.

No debt service reserve fund is established under the Indenture for the Series 2019 Bonds.

Initiatives; Changes in Law

In recent years several initiative measures have been proposed or adopted which affect the ability of local governments to increase taxes and rates. Article XIII A, Article XIII B, Article XIII C, Article XIII D, and Proposition 218, were adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the City or local districts to increase revenues or to increase appropriations which may affect the Net Revenues or the ability of the City to expend its revenues. There is no assurance that the electorate or the State Legislature will not at some future time approve additional limitations which could affect the ability of the City to implement rate increases which could reduce Net Revenues and adversely affect the security for the Series 2019 Bonds.

Future Rate Increases

The ability of the City to impose future rate increases is subject to, among other things, the provisions of Proposition 218. No assurance can be given that future rate increases will not encounter majority protest opposition or be challenged by initiative action authorized under Proposition 2018. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218.” If future proposed rate increases cannot be imposed as a result of majority protest or initiative, the City may be unable to generate sufficient Net Revenues to pay the principal of and interest on the Series 2019 Bonds. See also “FINANCIAL MATTERS RELATING TO THE ENTERPRISE–Rates, Fees, and Charges–Rate Increase Study.”

Statutory and Regulatory Impact

Laws and regulations governing collection, treatment and disposal of wastewater are enacted and promulgated by government agencies on the federal, State and local levels. Compliance with these laws and regulations may be costly, and, as more stringent standards are developed to protect the environment, these costs will likely increase. In addition, claims against the City for violations of regulations with respect to its facilities and services could be significant. Such claims are payable from Gross Revenues or from other legally available sources.

Although the City covenants in the Indenture to fix, prescribe and collect rates and charges for the services and facilities furnished by the Enterprise during each Fiscal Year sufficient to yield the debt service coverage not less than 1.25:1, no assurance can be given by the City that the cost of compliance with such laws and regulations will not materially adversely affect the ability of the City to generate sufficient Net Revenues in the amounts required by Indenture. Increasing regulatory standards could materially increase the cost to the City of providing wastewater services. See also “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218” and “–Effect of Proposition 218 and of Possible General Limitations on Enforcement Remedies.”

47 Seismic Risks

There are several geological faults in the greater San Francisco Bay Area that have the potential to cause serious earthquakes which could result in damage to buildings, roads, bridges, and property within the City.

The City, the Enterprise and the Bay Area are generally located in a zone 4 seismic hazard area. Seismic zones aid in identifying and characterizing certain geological conditions and the risk of seismic damage at a particular location and are used in establishing building codes to minimize seismic damage. The five seismic zones are: zone 0 (no measurable damage), zone 1 (minor damage), zone 2 (moderate damage), zone 3 (major damage) and zone 4 (major damage and greater proximity than zone 3 to certain major fault systems).

The City is located in the Hayward Fault Zone. Past experiences, including the 1989 Loma Prieta earthquake on the San Andreas Fault, with a magnitude of 7.1 on the Richter scale and with the epicenter located in Santa Cruz, approximately 65 miles south of the City, have resulted in minimal damage to the infrastructure and property within the City.

The nearest active fault to the City is the Hayward Fault, which is a northwest-southeast trending fault approximately 3.7 miles to the east of the City. The West Napa Fault lies approximately 17 miles to the northeast. The Concord-Green Valley fault lies approximately 18 miles to the east. The Rogers Creek fault lies approximately 15 miles to the north. The San Andreas Fault lies approximately 14 miles to the west. The northern part of the Calaveras fault lies approximately 20 miles to the southeast. All of these faults are considered active.

It is possible that new geological faults could be discovered in the area and a significant earthquake along these or other faults is possible during the period that the Series 2019 Bonds will be outstanding which may cause a delay or suspension of receipt of Net Revenues from the Enterprise.

The Treatment Plant is partially located on landfill. During an earthquake, landfill areas are subject to liquefaction, which is the temporary change of a saturated soil or fill to a liquid with the loss of support strength for structures. Commercial properties, residential properties and infrastructure in the City could sustain damage in a major seismic event from ground motion and liquefaction of underlying soils. This could result in a substantial reduction or suspension of Net Revenues.

In the event of significant earthquake damage to the Enterprise, there can be no assurance that Net Revenues will be sufficient to pay principal of and interest on the Bonds.

It is believed that the City is not at great risk of earthquake-triggered tsunamis due to natural attenuation across San Francisco Bay and Brooks Island near the City. If a tsunami did occur on the open ocean, it is expected that waves would dissipate as they moved through San Francisco Bay and past Angel Island and that the tidal flats would absorb much of the impact.

Climate Change

In 2005, the Governor signed Executive Order S-3-05 (the “Executive Order”) setting the stage for multiple legislative actions to reduce greenhouse gas emissions (“GHG”) to 80% below 1990 levels by 2050. The adoption of the California Global Warming Solutions Act of 2006 (“AB 32”) and subsequent companion bills, including but not limited to the Sustainable Communities and Climate Protection Act of 2008 (“SB 375”) that builds upon AB 32 to reduce GHG emissions by linking transportation funding to land use planning, demonstrate the commitment by the State to take action and reduce GHG to 1990 levels by 2020 and to 80% below 1990 levels by 2050. In 2008, the City Council adopted Resolution No. 108-08

48 committing to the GHG emissions targets established by AB 32. Additionally, the State adopted Senate Bill No. 32, which established a revised statewide GHG emission reduction target of 40% below 1990 levels by 2030.

In 2009, the California Natural Resources Agency released the Climate Adaptation Strategy, as updated in 2010, 2013, and 2018. California Climate Adaptation Strategy summarizes the best known science on climate change impacts in the State to assess vulnerability and outlines possible solutions that can be implemented within and across State agencies to promote resiliency.

In October 2016, the City adopted a Climate Action Plan (the “CAP”) to outline the goals and strategies to reduce GHG emissions, create local jobs, and prepare for the impacts of climate change on public health, infrastructure, ecosystems, and public spaces within the City. The CAP is a multi-objective plan that addresses environmental, social and economic issues related to climate change. The CAP builds on the goals and policies in the City’s General Plan 2030 (the comprehensive framework adopted by the City Council in April 2012 for developing a healthy City and healthy neighborhoods) and other planning documents and policies, including the Health in All Policies Strategy (to further the City’s efforts to build health equity through the reduction of local GHG emissions), to ensure that the City is prepared for the impacts of climate change, and to fulfill the requirements of AB 32 and SB 375.

The CAP included a Climate Change Adaptation Study (the “Adaptation Study”) that evaluated the climate change impacts at the local scale and a vulnerability and risk assessment of the City’s most important assets to rising temperatures, rising seas, extreme weather events, and more extreme droughts.

The Adaptation Study concluded that the greatest risks to the City related to climate change are a product of its bayside setting, the sensitivities of its Mediterranean climate, and its dependence on imported water from the Sierra Nevada Mountains as the primary water supply. Some of the most critical City assets where risk of damage or disruption from sea level rise is significant include the Treatment Plant, residential neighborhoods, the Chevron Refinery and other industrial areas including the Port of Richmond, highways, rail lines, fire stations, and law enforcement facilities. The Adaptation Study summarizes a broad range of climate change vulnerabilities to the functional, information, and management systems of the City and identifies potential consequences to the economy, public health, citizens, and environment. The City is engaged in multiple planning efforts to address some or all of these risks, however, the City cannot guarantee that these efforts will be completely successful in mitigating every risk to the City associated with climate change.

Local impacts of climate change are not definitive, but include changes to local and regional weather patterns; rising bay water levels; increased risk of flooding; changes in salinity and tidal patterns of San Francisco and San Pablo bays; coastal erosion; water restrictions; and vegetation changes.

Climate change concerns are leading to new laws and regulations at the federal, State and local levels. The City is unable to predict the impact such laws and regulations, if adopted, will have on Net Revenues. The effects, however, could be material.

Insurance

The Indenture obligates the City at all times to maintain with responsible insurers such insurance on the Enterprise as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to such works or properties. For a description of the required insurance coverage, see “THE WASTEWATER ENTERPRISE–Insurance on the Enterprise.”

49 No Tax Pledge; No Recourse to City General Fund

The obligation of the City to pay the principal of and interest on the Series 2019 Bonds does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Series 2019 Bonds nor the obligation of the City to make payments on the Series 2019 Bonds constitutes a debt of the City, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Owners of the Series 2019 Bonds have no recourse to the City’s General Fund for payment of amounts due with respect to the Series 2019 Bonds.

Cybersecurity

The City and the Enterprise each rely on a large and complex technology environment to conduct its operations. The City and its departments, including the Enterprise, face multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computers and other sensitive digital networks and systems. There have been, however, only limited cyber-attacks on the computer systems of the City and the Enterprise. No assurances can be given that the security and operational control measures of the City and the Enterprise will be successful in guarding against any and each cyber threat and attack. The results of any attack on the computer and information technology systems could have a material adverse impact on the operations of the City and the Enterprise and could damage the digital networks and systems. The resulting costs and/or impacts on operations of the City and of the Enterprise could be material.

Bankruptcy

The Enterprise, being an enterprise department of the City, likely cannot itself file for bankruptcy. While an involuntary bankruptcy petition cannot be filed against the City, the City is authorized to file for bankruptcy under certain circumstances. Should the City file for bankruptcy, there could be adverse effects on the holders of the Series 2019 Bonds.

To the extent that Gross Revenue are “special revenues” under the United States Bankruptcy Code (the “Bankruptcy Code”), then Gross Revenue collected after the date of the bankruptcy filing should be subject to the lien of the Indenture. If any or all of the Gross Revenue are determined not to be “special revenues,” then any such amounts collected after the commencement of the bankruptcy case will likely not be subject to the lien of the Indenture. The holders of the Series 2019 Bonds may not be able to assert a claim against any property of the City other than the Net Revenues, and if any or all of the Gross Revenue are no longer subject to the lien of the Indenture, then there may be limited, if any, funds from which the holders of the Series 2019 Bonds are entitled to be paid.

The Bankruptcy Code provides that “special revenues” can be applied to necessary operating expenses of the project or system, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. It is not clear which expenses would constitute necessary operating expenses, and any definition in the transaction documents may not be applicable.

If the City is in bankruptcy, the parties (including the Trustee and the holders of the Series 2019 Bonds) may be prohibited from taking any action to collect any amount from the City or to enforce any obligation of the City, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the holders of the Series 2019 Bonds from funds in the Trustee’s possession. The rate covenants (see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS– Rate Covenants”) may not be enforceable in bankruptcy by the Trustee or the holders of the Series 2019 Bonds.

50 Gross Revenue are deposited with and in the City Treasury and may be commingled with other City funds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Flow of Funds.” If the City goes into bankruptcy, the City may not be required to turn over to the Trustee any Gross Revenue that are in its possession at the time of the bankruptcy filing. In addition, if the City has possession of Gross Revenue (whether collected before or after commencement of the bankruptcy) and if the City does not voluntarily turn over such Gross Revenue to the Trustee, it is not clear what procedures the Trustee and the holders of the Series 2019 Bonds would have to follow to attempt to obtain possession of such Gross Revenue, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful.

The City may be able to borrow additional money that is secured by a lien on any of its property (including the Gross Revenue), which lien could have priority over the lien of the Indenture, or to cause some of the Gross Revenue to be released to it, free and clear of lien of the Indenture, in each case as long as the bankruptcy court determines that the rights of the Trustee and the holders of the Series 2019 Bonds will be adequately protected.

If the City is in bankruptcy it may be able, without the consent and over the objection of the Trustee and the holders of the Series 2019 Bonds, to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Indenture and the Series 2019 Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable.

There may be delays in payments on the Series 2019 Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of the City that could result in delays or reductions in payments on the Series 2019 Bonds, or result in losses to the holders of the Series 2019 Bonds. Regardless of any specific adverse determinations in a City bankruptcy proceeding, the fact of a City bankruptcy proceeding could have an adverse effect on the liquidity and value of the Series 2019 Bonds.

The City invests Gross Revenue in the City Pool. Should those investments suffer losses, Gross Revenue may be lower than expected, and there may be delays or reductions in payments on the Series 2019 Bonds.

Changes in Law

There can be no assurance that the State Legislature will not at some future time enact legislation that will amend or create laws resulting in a reduction of Net Revenues securing or available to pay the Bonds. Similarly, the State electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution which could have the effect of reducing moneys securing or available to pay the Bonds.

Loss of Tax Exemption

As discussed under the caption “TAX MATTERS,” interest on the Series 2019 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2019 Bonds were issued, as a result of future acts or omissions of the City in violation of their covenants in the Indenture. Should such an event of taxability occur, the Series 2019 Bonds are not subject to special redemption and will remain outstanding until maturity or until redeemed under other provisions set forth in the Indenture.

51 Secondary Markets and Prices

The Underwriters will not be obligated to repurchase any of the Series 2019 Bonds, and no representation is made concerning the existence of any secondary market for the Series 2019 Bonds. No assurance can be given that any secondary market will develop following the completion of the offering of the Series 2019 Bonds, and no assurance can be given that the initial offering prices for the Series 2019 Bonds will continue for any period of time.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City (“Bond Counsel”), based on an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2019 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2019 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel relating to the Series 2019 Bonds is set forth in Appendix D hereto.

To the extent the issue price of any maturity of the Series 2019 Bonds is less than the amount to be paid at maturity of such Series 2019 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2019 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2019 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2019 Bonds is the first price at which a substantial amount of such maturity of the Series 2019 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2019 Bonds accrues daily over the term to maturity of such Series 2019 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2019 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2019 Bonds. Beneficial Owners of the Series 2019 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2019 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2019 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2019 Bonds is sold to the public.

The Series 2019 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2019 Bonds. The City has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2019 Bonds will not be included in federal gross

52 income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2019 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2019 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2019 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2019 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the Series 2019 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2019 Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2019 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2019 Bonds. Prospective purchasers of the Series 2019 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2019 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the City, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The City has covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the Series 2019 Bonds ends with the issuance of the Series 2019 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the Beneficial Owners regarding the tax-exempt status of the Series 2019 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the City and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax- exempt bonds is difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2019 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2019 Bonds, and may cause the City or the Beneficial Owners to incur significant expense.

ABSENCE OF MATERIAL LITIGATION

There is no litigation pending with service of process having been accomplished, or, to the knowledge of the City Attorney, threatened, questioning the existence of the City or the title of the officers of the City to their respective offices or contesting the ability of the City to execute and deliver the Series 2019 Bonds, the Indenture, or the Escrow Agreement.

Various legal actions and claims against the City may exist which are incidental to the ordinary course of operations of the Enterprise. Based upon information currently available, the City Attorney believes that there are substantial defenses to such litigation and claims that, in any event, any ultimate liability in excess of applicable insurance coverage resulting therefrom will not have a material adverse effect on the ability of the City to service its indebtedness or to expend the proceeds for the purposes for which the Series 2019 Bonds are authorized or which will have a material adverse effect on the business operations of the Enterprise.

RATING

S&P Global Ratings (“Standard & Poor’s”) has assigned a rating of “AA-” to the Series 2019 Bonds.

The rating reflects only the views of Standard & Poor’s and is not a recommendation to buy, sell or hold the Series 2019 Bonds. An explanation of the significance of the rating may be obtained from the rating agencies as follows: Standard & Poor’s, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency, if in the judgment of such rating agency circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2019 Bonds.

UNDERWRITING

The Series 2019 Bonds are being purchased pursuant to a purchase contract between the City and Barclays Capital Inc., as representative on behalf of itself and Raymond James & Associates, Inc. (together, the “Underwriters”). The purchase contract provides that the Underwriters will purchase all of the Series 2019 Bonds if any are purchased. The obligation of the Underwriters to make such purchase is subject to certain terms and conditions set forth in the purchase contract.

The Underwriters may offer and sell the Series 2019 Bonds to certain dealers and others at prices or yields different than the initial public offering prices or yields. The offering prices or yields may be changed from time to time by the Underwriters.

Series 2019A Bonds

The Underwriters purchased the Series 2019A Bonds at a price of $25,259,259.67 (which represents the principal amount of the Series 2019A Bonds, plus an original issue premium in the amount of $2,872,296.80, and less an underwriters’ discount in the amount of $123,037.13).

54 Series 2019B Bonds

The Underwriters purchased the Series 2019B Bonds at a price of $78,974,210.09 (which represents the principal amount of the Series 2019B Bonds, plus an original issue premium in the amount of $13,131,123.05, and less an underwriters’ discount in the amount of $231,912.96).

MUNICIPAL ADVISOR

The City has retained the services of Public Resources Advisory Group, Oakland, California as Municipal Advisor in connection with the sale of the Series 2019 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. Public Resources Advisory Group is an independent financial advisory firm and is not engaged in any underwriting, trading or investment activities. All of the fees of the Municipal Advisor with regard to the delivery of the Series 2019 Bonds are contingent upon the issuance and delivery of the Series 2019 Bonds.

REGISTERED INVESTMENT ADVISOR

Raymond James & Associates, Inc. (“Raymond James”) acted as registered investment adviser to the City in its capacity as bidding agent in conducting a competitive bid procurement for the purchase of open market securities to be held in the Taxable 2010B Bonds Escrow Account. Raymond James will receive compensation for bidding agent services contingent on the sale and delivery of the Series 2019B Bonds.

APPROVAL OF LEGAL PROCEEDINGS

All legal matters incident to the authorization, issuance and sale of the Series 2019 Bonds are subject to the approval of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. The form of approving opinion of Bond Counsel is included as Appendix D to this Official Statement and the approving opinion will be delivered with the Series 2019 Bonds. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City by the City Attorney and by Schiff Hardin LLP, San Francisco, California, Disclosure Counsel, and for the Underwriters by Jones Hall, A Professional Law Corporation, San Francisco, California, Underwriters’ Counsel. All of the fees of Bond Counsel, Disclosure Counsel and Underwriters’ Counsel are contingent upon the issuance and delivery of the Series 2019 Bonds.

FINANCIAL STATEMENTS

Attached as Appendix B hereto is the City’s Comprehensive Annual Financial Report (the “CAFR”) for the Year Ended June 30, 2018, which includes financial statements for the City, including for the Enterprise, which have been audited by Maze & Associates, Accounting Corporation, certified public accountants. See APPENDIX B–“COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2018.” The Independent Auditor’s Report prepared by Maze & Associates dated May 17, 2019 is included in the CAFR and describes, among other matters, the scope of the audit conducted and the auditor’s responsibilities. Prospective purchasers of the Series 2019 Bonds should review such report noting, in particular, the matters emphasized or disclaimed therein. The CAFR includes information regarding funds other than the Municipal Sewer Fund that are not pledged to pay debt service on the Series 2019 Bonds. Maze & Associates has not consented to the inclusion of its report in Appendix B and has not

55 undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement.

The Series 2019 Bonds are limited obligations of the City payable from Net Revenues of the Enterprise. No other funds of the City are available for payment of the Series 2019 Bonds. The inclusion of the complete Comprehensive Annual Financial Report for the City does not imply that any revenues other than Net Revenues of the Enterprise are pledged to make any payments on the Series 2019 Bonds.

CONTINUING DISCLOSURE

The City has covenanted for the benefit of the Series 2019 Bondholders to provide certain financial information and operating data relating to the Enterprise and the City by not later than March 26 following the end of the City’s fiscal year (presently June 30) in each year commencing with the report for the 2018- 19 Fiscal Year (the “Annual Report”) and to provide notices of the occurrence of certain specified events. The Annual Report and notices of specified events will be filed by the City or the Dissemination Agent, if any, on behalf of the City through the Electronic Municipal Market Access Site maintained by the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of enumerated events by the City is summarized in APPENDIX E–“FORM OF CONTINUING DISCLOSURE AGREEMENT.”

In the past five years, the City inadvertently did not make certain filings with respect to bond ratings changes arising from changes in the ratings of the applicable bond insurer. In addition, certain other filings inadvertently omitted certain required information. Such failures to file and omissions were remediated by subsequent filings.

The City undertakes continuing disclosure responsibilities for City bond issues and for bonds issued by the Authority with respect to which the City is the “obligated person” under the Rule. In addition, the relevant City staff undertakes these responsibilities for the Successor Agency to the Richmond Community Redevelopment Agency (the “Successor Agency”) and its bond issues. The City inadvertently missed filings for bond ratings changes described above apply to certain Authority and Successor Agency bonds as well.

In January 2014, the City established procedures, including the appointment of Willdan Financial Services, as the Dissemination Agent for all City bond transactions who is required to determine each year the applicable filing date for the annual reports. In addition, the City designated the Finance Department Debt Analyst as the party responsible for monitoring and making the required filings.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

Upon delivery of the Series 2019 Bonds, the Verification Agent will deliver a report of the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the City, relating to: (i) the sufficiency Investment Securities and the interest thereon, and the uninvested cash in the Refunding Escrow to pay the Refunded Taxable Series 2010B Bonds Redemption Price on the scheduled redemption date, and (ii) the “yield” of the deposits in the Escrow Account and on the Series 2019 Bonds considered by Bond Counsel in connection with their opinion that the Series 2019 Bonds are not “arbitrage bonds” within the meaning of section 148 of the Internal Revenue Code of 1986, as amended.

The report of the Verification Agent will include the statement that the scope of their engagement is limited to verifying mathematical accuracy, of the computations contained in such schedules provided to them, and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. 56

MISCELLANEOUS

References made herein to certain documents and reports are brief summaries thereof and do not purport to be complete or definitive and reference is hereby made to such documents and reports for a full and complete statement of the contents thereof.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or registered owners of any of the Series 2019 Bonds. The delivery and distribution of this Official Statement have been duly authorized by the City.

CITY OF RICHMOND

By: /s/ Belinda Warner City Finance Director

57 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

CERTAIN DEMOGRAPHIC, ECONOMIC AND FINANCIAL INFORMATION REGARDING THE CITY OF RICHMOND

TABLE OF CONTENTS

Page

DEMOGRAPHIC AND ECONOMIC INFORMATION ...... 1 Introduction...... 1 Population ...... 1 Economy ...... 2 Employment ...... 7 Personal Income ...... 9 Construction Activity ...... 11 Transportation ...... 11 Utilities ...... 12 Community Facilities ...... 13 Education ...... 13 FINANCIAL OPERATIONS ...... 14 Financial Policies and Practices ...... 14 Pension Plans ...... 16 Other Post-Employment Benefits ...... 23 Risk Management ...... 26

INDEX OF TABLES

Table A-1 – City, County and State Population Statistics ...... A-1 Table A-2 – Principal Employers in the City ...... A-7 Table A-3 – Civilian Labor Force, Employment and Unemployment ...... A-8 Table A-4 – Total Personal Income ...... A-10 Table A-5 – Building Permit Valuations ...... A-11 Table A-6 – Changes in Net Pension Liability– Miscellaneous Plan (CalPERS) ...... A-22

A-i [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

CERTAIN DEMOGRAPHIC, ECONOMIC AND FINANCIAL INFORMATION REGARDING THE CITY OF RICHMOND

The City of Richmond, California (the “City”), is located 16 miles northeast of San Francisco on the western shore of Contra Costa County (the “County”), occupies 33.7 square miles of land area on a peninsula that separates the San Francisco Bay from San Pablo Bay, and spans 32 miles of shoreline. The City is an important oil refining, industrial, commercial, transportation, shipping and government center. Redevelopment in the downtown and waterfront areas and commercial expansion in the City’s Hilltop area, along the Interstate 80 and Interstate 580 corridors, and along the Richmond Parkway have added to the tax base of the City in recent years.

DEMOGRAPHIC AND ECONOMIC INFORMATION

Introduction

The demographic and economic information provided below has been collected from sources that the City has determined to be reliable. Because it is difficult to obtain complete and timely regional economic and demographic information, the City’s economic condition may not be fully apparent in all of the publicly available regional economic statistics provided herein.

Population

City residents account for approximately 10% of the population of the County. Both the City and the County have experienced consistent growth since 1990. Table A-1 below shows the population of the City, the County, and the State according to the U.S. Census for the years 2010 and as estimated by the California Department of Finance for 2015 through 2019.

Table A-1 City, County and State Population Statistics (As of January 1)

Year City of Richmond Contra Costa County State of California 2010 103,764 1,047,948 37,253,956

2015 108,559 1,113,759 38,952,462 2016 109,646 1,128,574 39,214,803 2017 109,863 1,139,746 39,504,609 2018 110,128 1,147,879 39,740,508 2019 110,436 1,155,897 39,927,315 ______Sources: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties, and the State, 2011-2019, with 2010 Census Benchmark. Sacramento, California, May 2019.

A-1 Economy

Overview. The economy of the City includes oil refining operations, heavy and light manufacturing, distribution facilities, service industries, commercial centers, and a multi-terminal shipping port on San Francisco Bay. Richmond also serves as a government center for western portions of Contra Costa County.

The economy of the City has experienced growth in light industrial and high technology companies and new business parks that accommodate both light industrial and “office/flex” type commercial buildings. Growth in these sectors is adding diversity to the City’s historically heavy industrial base. At the same time, major manufacturers continue to upgrade their facilities, making major investments in modernization and expansion.

The City is continuing its efforts to attract developers, builders, manufacturers and commercial activity to all areas of the City. Economic development program efforts are being expanded to increase private sector investment, job, and housing and recreational activities in the City.

Industrial Activity. Historically, the City has been viewed as an industrial and distribution center, largely due to the visible presence of a major oil refinery operated by Chevron USA Inc. (“Chevron”) and the bulk liquid terminals in the Port of Richmond.

Impact of Chevron Refinery. Chevron operates a major oil refinery (the “Refinery”) in the City and is the largest employer and taxpayer in the City. See “–Employment.” Chevron also owns and operates a liquid bulk cargo facility at its terminal on San Francisco Bay.

Over the years, Chevron has had disputes with the City involving tax matters, including the applicability of certain taxes and such matters as assessed valuation for property tax purposes. Of current significance, the City is receiving annual payments of utility users tax from Chevron in partial settlement of a dispute regarding Measure T, a business license tax imposed beginning in 2009, which payments will decline in future years and terminate in Fiscal Year 2024-25. See “FINANCIAL OPERATIONS–Major General Fund Revenue Sources–Utility Users Tax” and “–Property Taxes.” In addition, there has been environmental litigation among Chevron, the City, and other parties.

Chevron is expected to continue to be a major property owner, taxpayer, and employer in the City and, as a result, a significant source of revenues to the City as well as a substantial part of the City’s economy generally. Other disputes involving Chevron may arise from time to time in the future.

On July 29, 2014, the City Council approved certification of the final environmental impact report and applications submitted by Chevron Products Company for a Conditional Use Permit (“CUP”) and Design Review Permit (“DRP”), as well as an Environmental and Community Investment Agreement (the “ECIA”) to allow an approximately $1.0 billion replacement of the existing hydrogen plant, power plant, and reformer (collectively, the “Chevron Modernization Project”). The equipment is designed to improve the ability of the Refinery to process high-sulfur crude oil, reliability, energy efficiency, and add environmental controls. Pursuant to the ECIA, Chevron will invest $80 million dollars in the City over the next 10 years for community programs, including, but not limited to, competitive community grants, a scholarship program, community-based greenhouse gas reduction programs and a photovoltaic solar farm. Chevron made initial payments to the City totaling $12 million between 2014 and 2015, of which $8 million was deposited into a dedicated fund for the “Richmond Promise,” a college scholarship program established by the City Council for students graduating from public, charter, and private high schools located in the West Contra Costa Unified School District. In accordance with the ECIA, Chevron has contributed $40 million of the total required amount through April 15, 2019. According to the terms

A-2 of the ECIA, over a 10-year period, $35 million will be used to fund the “Richmond Promise,” $15 million will be spent on other community-based programs, and $30 million will be utilized for community based greenhouse gas reduction programs. As part of the ECIA, Chevron also partnered with MCE, a nonprofit renewable energy provider, to construct Solar One, a 12 megawatt solar power generating facility, with an estimated value of $10 million.

On April 8, 2015, the Contra Costa County Superior Court lifted the injunction that halted construction of the Chevron Modernization Project since 2009. That injunction was as a result of lawsuits filed asserting that the project could increase pollution and challenging the sufficiency of the environmental impact report. In addition, the Bay Area Air Quality Management District reissued the authority-to-construct permit for the modified project.

Chevron commenced updating its engineering, procurement and construction plans. The field construction of the Chevron Modernization Project restarted in June 2018 and is anticipated to be complete by December 2019.

High Technology and Biotechnology. “High tech” light industrial firms, research and development companies, biotechnology, and business park developments are growing industrial sectors in the City. Biotechnology, medical instruments, and computer software in particular are emerging sectors in the City’s economy.

A number of factors appear to be attracting the new high tech firms to the City:

• The ongoing development and leasing of light industrial/business park property at Hilltop and in the Marina District along Richmond’s South Shoreline and the Richmond Parkway; • Availability of fairly extensive vacant or underutilized land areas zoned for industrial use; • Relatively lower land costs than elsewhere in the Bay Area; • Richmond’s central location in western Contra Costa County, within a short distance of San Francisco, Oakland, other East Bay cities and Marin County, and a relatively easy commute to the State’s capitol, Sacramento; • Proximity to the University of California at Berkeley (“UC Berkeley”), one of the major scientific universities and library systems in the world; • Good access and transportation (two Interstate freeways Interstate 80 and Interstate 580 are located within the city, the Richmond Parkway, Amtrak, the Bay Area Rapid Transit District (“BART”) System and AC Transit, as well as heavy rail and water transportation facilities, including Union Pacific and BNSF Railroads, Santa Fe western terminal, and the Port of Richmond); and • Availability of affordable housing in a variety of neighborhoods, housing types and price ranges. • The Richmond Ferry connects the San Francisco Ferry Terminal and the newly constructed ferry terminal at Richmond’s Ford Point. This new route takes 35 minutes.

Among the high tech companies located within the City is Dicon Fiberoptics (“Dicon”), a manufacturer of fiberoptic components, modules and test instruments. Dicon is located in an approximately 201,000 square foot corporate headquarters building, of which a portion is leased to the City to house the City’s Police Department. An approximately 130,000 square foot research facility is located on an approximately 28-acre campus located in the Marina District of the City.

Biotechnology companies located in the City include Analytical Scientific Instruments (ASI), Bio-Rad, Ekso Bionics, Kaiser Laboratories, Sangamo Biosciences, and Transcept Pharmaceuticals.

A-3 • ASI, a manufacturer of medical equipment instruments and components, purchased a building within the City and relocated from neighboring El Sobrante. ASI brought 25 existing employees with them and expects to hire 10 additional employees.

• Bio-Rad, a manufacturer of products for life science research and clinical diagnostics, leases 116,250 square feet of space in Richmond’s Pinole Point Business Park near Atlas Road on the Richmond Parkway.

• Ekso Bionics, originally named Berkeley Bionics, was founded in Berkeley, California in 2005. Ekso, a pioneer in exoskeleton bionic devices that enhance and augment strength mobility and endurance of people with lower extremity paralysis or weakness, relocated to the City in April 2012 with 80 employees. Since inception Ekso Bionics has forged partnerships with world-class institutions like UC Berkeley, received research grants from the Department of Defense and licensed technology to the Lockheed Martin Corporation. Ekso Bionics occupies space in the 520,000 square foot Ford Building in the Marina District.

• Kaiser Laboratories handles more than 25,000 lab specimens daily in a 50,000 square foot facility located on Marina Way South in Richmond’s Marina District.

• Sangamo Biosciences, a worldwide leader in the design and development of engineered zinc finger DNA-binding proteins for gene regulation and gene modification, is located in a 127,500 square foot facility in the Point Richmond area of the City.

• Transcept Pharmaceuticals, a specialty pharmaceutical company focused on development and commercialization of proprietary products that address therapeutic needs in the field of neuroscience, is located in an approximately 12,757 square foot facility in the Point Richmond area of the City.

Additionally, the State Department of Health Services operates a Public Health Laboratory in a state-of-of-the-art facility comprised of five buildings encompassing approximately 700,000 square feet in the Marina District.

Green Technology. Green-technology companies located in the City include Alion Energy, Inc., Heliodyne, PAX Water Technologies, Inc., and SunPower Systems.

• Alion Energy, Inc., a developer and manufacturer of solar tracker mounting and robotic cleaning systems, has been operating in the City since 2009.

• Heliodyne, Inc., a manufacturer of solar water heating equipment, has been located in the City since 1976, and occupies 4,298 square feet in the Southern Gateway area of the City off of Interstate-580.

• PAX Water Technologies, Inc., a developer of market energy-efficient mixing systems for potable water storage tanks, has been operating in the City since 2010.

• SunPower Systems, an international leader in design and manufacturing and distributor of high efficiency solar electric technology, has been operating in the City since 2007. SunPower System occupies 175,000 square feet in the refurbished, historic 520,000 square foot Ford Point Building in the Marina District.

A-4 Future Development. Completion of the John T. Knox Freeway in the early 1990’s (Interstate 580 extension from Interstate 80 at Albany to the Richmond/San Rafael Bridge) spurred new industrial and commercial development along the freeway corridor throughout the South Shoreline area of the City.

Berkeley Global Campus, Richmond Bay: In January 2012, the UC Field Station was selected by the Lawrence Berkeley National Laboratory (LBNL) as the preferred site for the development of its second campus. The original plan was to develop a joint second campus (then known as the Richmond Bay Campus (the “RBC”) for LBNL and UC Berkeley. In 2013, LBNL lost expected Department of Energy funding in the wake of federal budget sequestration, leaving development plans in limbo. In October 2014, UC Berkeley announced plans to develop the more than 130 acres site of approximately 220 acres along Richmond Bay as the “Berkeley Global Campus,” a new form of international institution of higher education and research. A long range development plan for the BGC (then the RBC) to guide development of up to 5.4 million square feet of research and development facilities and 10,000 employees in phases through 2050 was prepared and a Draft Environmental Impact Report was released in January 2013. On May 15, 2014, a final environmental impact report was certified and the long range development plan was adopted by the University of California Board of Regents. There is no timeline for construction at this time. The BGC is expected to be the foundation for commercial business, industrial, maritime, and residential growth within the City.

Richmond Bay Specific Plan: The City was awarded a Priority Development Area Planning Grant from the Metropolitan Transportation Commission and the Association of Bay Area Governments to develop the Richmond South Shoreline Specific Plan for an approximately 220-acre area located in the City of Richmond south of Interstate Highway 580 and will focus on ways the City can take advantage of the planned Berkeley Global Campus, Richmond Bay, future ferry service, and other area assets to create a sustainable shoreline district providing jobs, housing, transportation options, and opportunities for entertainment and recreation. In December 2016, the City Council adopted the Richmond Bay Specific Plan (the “Plan”) and certified an environmental impact report for the Plan. The Plan articulates a clear vision for the area as a series of distinct, walkable, mixed-use neighborhoods that can accommodate over 5.6 million square feet of research and development uses, 720,000 square feet of retail and services, over 4,000 housing units, and 84 acres of public and natural open space.

Industrial Development. Development along the Richmond Parkway, which links the northern edge of Richmond (Interstate 80 at Hilltop) and the City’s southwest corner (Interstate 580) and the Richmond San Rafael Bridge, opened up a large tract of industrially zoned area in the northwest area of the City. Recent development includes:

• Amazon – a 242,000 square foot warehouse with up to 100 employees. • Blue Apron, Inc. – a 100,000 square foot distribution center with approximately 1,200 employees as of Fiscal Year 2017-18. • Chevron Modernization Project – a $1 billion project to modernize and replace the oldest processing equipment with safer modern technology. See “–Impact of Chevron Refinery.” • HelloFresh Inc. – a 107,784 square foot freezer storage warehouse with 1,256 employees. • Ex Steel Scape site – a 700,000 square foot distribution center. • Mattress Firm Factory – a 200,000 square foot factory/warehouse • Pinole Point Distribution Center – a 600,000 square foot warehouse and distribution under construction include: Williams Sonoma, 252,375 square foot warehouse with up to 80 employees; and Amazon – a 242,000 square foot warehouse with up to 100 employees. • Restoration Hardware – a 200,000 square foot distribution center.

A-5 • Whole Foods Distribution Center – a 47,000 square foot distribution center with 95 employees. • Williams Sonoma, Inc. – an approximately 247,908 square foot distribution center with up to 80 employees.

Planned development includes PowerPlant Park an approximately 160,000 square feet of rentable canopy space for cannabis cultivation that was approved by the Planning Commission on April 18, 2018. This project will be constructed on an approximately 18-acre site on the Richmond North Shoreline. Upon completion it is expected that approximately 500 people will be employed.

Residential and Commercial Development. As the economy continues to improve, the City anticipates that shoreline area of the City will be in stronger demand for residential and commercial development. As of March 2019, 543 new residences are under construction, 977 units entitled, and 701 units under review. In addition, approximately 447,742 square feet of industrial/commercial space is under construction, 169,000 square feet is entitled, and several hotel projects are under review. Below is a list of recently completed, on-going, and entitled projects together with projects under review:

Residential

• 12th Street and Macdonald Avenue mixed-use project – an eight-story, 256 market rate/affordable residential unit development, with approximately 56,000 square feet of commercial space • Artisan Cove (Phase 3), 51 Live/Work Units and 13 Work Spaces (under construction) • The Cascades – 46 units of market rate townhomes and condominiums • Garrity Way Apartments – a 98 market rate unit condominium development • Harbour View Senior Apartments –80-unit affordable apartment development • Hilltop Apartments – a 180 unit market rate/affordable apartment complex • Marina Way South Residential Project – a four- and five-story, 399 unit market rate/ residential development and with approximately 1,800 square feet of retail space, near the Richmond Ferry terminal (under review) • Miraflores – an 80 unit affordable senior housing development • Miraflores Residential Condominium Project – 190 market rate and affordable condominium units • Parcel FM – a mixed-use project, with approximately 400 market rate and affordable residential units and 10,000 square feet of commercial uses • The Point – a 27 unit market rate townhome development • Quarry Residential Project – 193 attached residential units • SAA|EVI Metro Walk Phase 2, 400-500 rental units, 25%-30% of which will be affordable to moderate income households. • Shea Homes Waterline Project – a 60-unit luxury condominium development (under construction) • Terminal One – a 316-unit market rate residential community on the Richmond shoreline comprised of 295 luxury condominium units and 21 single-family homes. This property is owned by the City and is under a contract for sale to a developer for a purchase price of $10 million, of which the developer has paid the City $500,000 in a non-refundable deposit. The City anticipates that following final regulatory approval from the Bay Conservation and Development Commission, close of escrow will be completed by the end of 2019. • Terraces at Nevin Apartment Complex – a 271-unit affordable apartment development, with 268 affordable units (under construction)

A-6 • Westridge Apartments Modernization and Expansion –rehabilitation of 401 affordable units and construction of 62 affordable units • William Lyons Homes NOMA – a 193-unit market rate mixed use live/work and townhome development at Marina Way South and Wright Avenue (under construction)

Commercial

• 912 Harbour Way South Industrial Project – a 182,000 square foot warehouse/distribution space • Hilltop Charter School • Home2Suites Hotel – a four-story, 107 room hotel • Life Long Medical Facility – a 33,742 square foot medical office (under construction) • Lumber Barron – a 32,000 square foot light industrial warehouse • Making Waves Academy Expansion – Renovation of three existing classroom buildings, and construction of three new classroom buildings, two new gymnasiums, outdoor student space, associated parking and infrastructure improvements on six adjacent/nearby parcels • Point Pinole Business Park, Phase III – a 162,000 square foot speculation warehouse building • Residence Inn @ Hilltop Project – a four- story, 104 room hotel • West Contra Costa Family Justice Center

Employment

Table A-2 provides a listing of principal employers located in the City, as of Fiscal Year 2017-18.

Table A-2 Principal Employers in the City Fiscal Year 2017-18

Estimated Number of Employer Name Product/Service Employees Chevron Refinery Oil Refinery/Research Facility 3,150 West Contra Costa Unified School District Education 1,658 Social Security Administration Governmental Services 1,259 Blue Apron, Inc. Meal Delivery Service 1,200 U.S. Postal Service Governmental Services 1,047 City of Richmond Governmental Services 888 Contra Costa County Governmental Services 844 Kaiser Foundation Hospitals Healthcare Services 805 Costco Wholesale #482 Wholesale Warehouse 431 SunPower Corporation Solar Electric Technology 291 ______Source: City of Richmond.

A-7 The following Table A-3 compares estimates of the labor force, civilian employment and unemployment for the City, County, State and United States from 2014 through 2018 (the most recent annual data available). The State Employment Development Department data for April 2019 (preliminary) indicates that the unemployment rate (not seasonally adjusted) for the City was 3.1%, for the County was 2.8%, for the State was 3.9%, and for the United States was 3.3%.

Table A-3 Civilian Labor Force, Employment and Unemployment Annual Average for Calendar Years 2014 through 2018 (Not Seasonally Adjusted)

Civilian Unemployment Year and Area Labor Force Employment Unemployment Rate 2018(1) City 53,300 51,400 1,900 3.6% County 564,600 546,800 17,800 3.2 State 19,398,200 18,582,800 815,400 4.2 United States 162,075,000 155,761,000 6,314,000 3.9

2017(2) City 53,500 51,000 2,500 4.6 County 563,900 542,500 21,400 3.8 State 19,312,000 18,393,100 918,900 4.8 United States 162,320,000 153,337,000 6,982,000 4.4

2016(2) City 53,500 50,800 2,700 5.1 County 557,000 532,200 24,800 4.5 State 19,093,700 18,048,800 1,044,800 5.5 United States 159,187,000 151,436,000 7,751,000 4.9

2015(2) City 52,700 49,700 3,000 5.8 County 547,500 520,000 27,500 5.0 State 18,896,500 17,724,800 1,171,700 6.2 United States 157,130,000 148,834,000 146,411,000 5.3

2014(2) City 52,1000 48,400 3,700 7.1 County 540,900 507,500 33,400 6.2 State 18,758,400 17,351,300 1,407,100 7.5 United States 155,922,000 146,305,000 9,617,000 6.2 ______(1) Preliminary. (2) Revised. Sources: State of California Employment Development and Department Labor Market Information Division; U.S. Bureau of Labor Statistics.

A-8 Personal Income

General. The United States Department of Commerce, Bureau of Economic Analysis (the “BEA”) produces economic accounts statistics that enable government and business decision-makers, researchers, and the public to follow and understand the performance of the national economy.

The BEA defines “personal income” as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors’ income with inventory valuation adjustment and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau’s annual midyear population estimates.

Minimum Wage Ordinance. In 2014, the City adopted a Minimum Wage Ordinance requiring that beginning January 1, 2015 (subject to certain exceptions), employees working within the geographic boundaries of the City be paid an hourly rate equal to $9.60, subject to a reduction equal to $1.50 per hour if the employer pays at least that amount per hour per employee towards an employee medical benefit plan. Thereafter, the minimum wage within the City increased each January 1 until reaching $13.00 per hour effective January 1, 2018. Beginning January 1, 2019, and each year thereafter, the City Minimum Wage will increase by the Consumer Price Index for Urban Wage Earners and Clerical Workers for the San Francisco-Oakland-San Jose, California Metropolitan Statistical Area, or any successor index published by the U.S. Department of Labor or its successor agency. As of January 1, 2019, the minimum wage in the City is $15.00 per hour.

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A-9 Table A-4 presents the latest available total personal income and per capita personal income for the City, the County, the State and the United States for the calendar years 2013 through 2017 (the most current annual data available).

Table A-4 City of Richmond, Contra Costa County, State of California and United States Total Personal Income Calendar Years 2013 Through 2017†

Total Per Capita Personal Income Personal Income Year and Area (millions of dollars) (dollars) 2017† City $2,920 $26,124 County 87,810 76,527 State 2,364,129 60,004 United States 16,820,250 51,640 2016 City 2,797 25,024 County 82,204 72,195 State 2,259,414 57,625 United States 16,115,630 49,831 2015 City 2,744 24,856 County 77,915 69,195 State 2,173,300 55,793 United States 15,711,634 48,940 2014 City 2,708 24,453 County 71,164 64,056 State 2,021,640 52,340 United States 14,983,140 47,025 2013 City 2,719 25,614 County 67,290 61,435 State 1,885,672 49,259 United States 14,175,503 44,826

† Most current annual data available. Sources: U.S. Department of Commerce, Bureau of Economic Analysis and HDL Coren & Cone for City data.

A-10 Construction Activity

Table A-5 sets forth a five-year summary of building permit valuations and new dwelling units within the City.

Table A-5 City of Richmond Building Permit Valuations Calendar Years 2013 through 2017(1) ($ in 000’s)

Residential Value of Total Single Family Multifamily Alterations Residential Nonresidential Year Units Valuation Units Valuation and Additions Valuation Valuation Total(2) 2013 2 $650 0 $0 $9,917 $10,567 $59,349 $69,916 2014 6 1,106 56 8,810 10,833 20,749 75,486 96,235 2015 18 3,407 63 13,523 16,769 30,292 48,288 78,580 2016 25 7,305 0 0 15,282 22,587 66,298 88,885 2017 62 2,460 98 21,658 19,891 44,009 155,382 199,391 ______(1) Most current annual data available. (2) Total represents the sum of residential and nonresidential building permit valuations. Data may not total due to independent rounding. Source: California Homebuilding Foundation/Construction Industry Research Board.

Transportation

The City is a central transportation hub in the Bay Area, offering convenient access throughout the region and well into central California. The City’s port facilities, railroads and proximity to international airports are complemented by a network of freeways and public transportation services.

Freeways. Existing and new highways have made travel to and through the City more efficient and convenient. Interstate 80, which passes through the City, is a direct route to Oakland, San Francisco, Vallejo, Fairfield and Sacramento. Interstate 580 provides continuous freeway access from Richmond’s South Shoreline area to East Bay communities and to Marin County and is stimulating new commercial, industrial and residential development along the City’s South Shoreline. Similarly, completion of the Richmond Parkway through North Richmond in 1996 improves vehicular access between Marin and communities to the north and east on Interstate 80, while opening major tracts of land along the City’s north shoreline for new development.

Port and Rail. The Port of Richmond (the “Port”) is a deep water port and is the third largest in the State by annual tonnage. The Port is a public enterprise established by and administered as a department of the City. Revenues of the Port are not General Funds of the City. The Port handles more than 20.8 million metric tons of general, liquid and dry bulk commodities each year. In 2009, the Port executed an agreement with American Honda Company whereby Honda agreed to import a minimum annual guarantee of 145,000 units per year through the Port for 15 years.

The Port contains seven City-owned marine terminals leased and operated by private lessors under lease contracts with the Port, five dry-docks, and 11 privately owned and operated terminals. Private terminals are responsible for almost 95% of the Port’s annual tonnage. On-dock rail service is

A-11 provided to many port terminals by the Burlington Northern Santa Fe (“BNSF”) and the Union Pacific Southern Pacific railroads. The Port, together with the BNSF operations, serve as a highly developed international rail facility.

A widely varied assortment of cargo moves through the Port, although over 90% of the annual tonnage is in liquid bulk cargo, most of which is shipped through the Chevron Terminal. Principal liquid bulk cargos are petroleum and petroleum products, chemicals and petrochemicals, coconut oil and other vegetable oils, tallow and molasses. Dry bulk commodities include coal, gypsum, iron ore, cement, logs and various mineral products. Automobiles, agricultural vehicles, steel products, scrap metals, and other diversified break-bulk cargos are also a significant part of the traffic through the Port.

Ferry Service. In March 2015, the San Francisco Bay Area Water Emergency Transportation Authority (“WETA”) Board of Directors approved a Cooperative Agreement with the Contra Costa Transportation Authority (the “CCTA”) and the City for the CCTA to provide an operating subsidy for proposed ferry service from the City to San Francisco. The 10-year agreement serves as the basis of future planning efforts to support and plan the Richmond ferry service. WETA approved funding to purchase two catamaran ferry vessels and construction of a Richmond Ferry Terminal on Richmond Bay Shoreline, including construction of an accessible gangway with a new ramping system, float and piles, a passenger shelter, the development and reconfiguration of a 362-space paved parking lot, and installation of a new ADA-compliant kayak launch ramp and improved shoreline access at Ford Point. Construction of the ferry terminal and improvements were completed and ferry service from Ford Point Ferry Terminal in the City to the San Francisco commenced on January 10, 2019.

Regional Airports. Oakland International Airport (approximately 18 miles from the City) and San Francisco International Airport (approximately 28 miles from the City) provide the City with worldwide passenger and freight service. In addition, Buchanan Field Airport, located in the City of Concord, in central Contra Costa County, is 25 miles to the east of the City, and Byron Airport, located in the unincorporated community of Byron in eastern Contra Costa County, each provide general aviation services.

Public Transit. The public is served by the San Francisco Bay Area Rapid Transit System (“BART”) with a station conveniently located in downtown Richmond; AMTRAK passenger train service is available from a station adjacent to the Richmond BART station; and AC Transit offers local bus service within the City, to other East Bay communities and to San Francisco.

Utilities

Utility services to the City are supplied by the following:

Electric power: Pacific Gas & Electric Co. (“PG&E”) and MCE Natural gas: PG&E Telephone: AT&T Water: East Bay Municipal Utility District (“EBMUD”) Sewer: West Contra Costa Sanitary District, Richmond Municipal Sewer District, and Stege Sanitary District

Approximately 89% of the EBMUD water supply is from the Mokelumne River watershed stored at the 69.4 billion gallon capacity Pardee Dam in Ione, California. EBMUD is entitled to 325 million gallons per day under a contract with the State Water Resources Control Board, plus an additional 119 million gallons per day in a single dry year under a contract with the U.S. Water and Power Resources Service (formerly the U.S. Bureau of Reclamation).

A-12 On June 19, 2012, the City Council voted to join MCE (formerly Marin Clean Energy), a nonprofit energy provider that derives a minimum of 50% of its electricity from renewable sources.

Effective July 1, 2013, all City residents and businesses were automatically enrolled in the Green Light package offered by the Marin Clean Energy Community Choice Aggregation program unless they opted out of the program between April and June 2013. Although power is still being transmitted through existing PG&E lines, half of it comes from solar, wind, hydroelectric, and biogas (natural gas extracted from sewage systems or landfills rather than fossil fuels). City residents still receive their bills from PG&E. MCE also offers customers the option of enrolling in the Deep Green package, which supplies 100% of electricity from renewable sources at rate increase of approximately one cent per kilowatt hour.

Community Facilities

City residents have access to modern health care facilities. Within the City there is one general hospital, the Kaiser Hospital Facility, located in the downtown area and several convalescent hospitals. There are a variety of leisure, recreational, and cultural resources within the City, from boating, fishing and hiking, to live theater, golf, tennis, and team athletics. Four regional parks are on the shoreline: Point Pinole, George Miller Jr./John T. Knox, Ferry Point and Point Isabel. The City operates a public marina (775 boat berths at Marina Bay), four large community parks (Point Molate Beach Park, Hilltop Lakeshore Park, Nicholl Park, and Marina Park and Green), 25 neighborhood parks ranging in size from one to 22 acres, many play lots and mini parks, and seven community centers.

The City also operates a recreation center for disabled persons, a sports facility, two senior centers (Richmond Senior Center and Richmond Annex Senior Center), the Richmond Museum, the Richmond Municipal Auditorium, the Richmond Swim Center, the Richmond Plunge/Natatorium, Coach Randolph Pool, the Washington Fieldhouse, the Veterans Memorial Auditorium, and the Richmond Public Library. The Richmond Art Center, a privately funded arts organization, is partly supported by the City. Currently, 12 of the City’s 13 recreation centers are operational.

There are also several private yacht harbors, golf and country clubs, and community theaters within the City.

East Bay Regional Park District (“EBRPD”) maintains one regional park, four regional shorelines, and one regional preserve within Richmond. One additional parkland facility, the 214-acre Kennedy Grove Regional Recreation Area, is located in an unincorporated area of the County bordering on the City at the eastern end of El Sobrante Valley. The four regional shorelines presently owned and maintained by EBRPD represent a substantial portion of the City’s shoreline. The regional shorelines and Wildcat Canyon Park are used not only by residents of the City but also by the general public within the Bay Area region.

In addition, approximately 35 miles of the planned 500-mile multi-purpose San Francisco Bay Trail encircling the San Francisco and San Pablo Bays are also located in the City.

Education

The City comprises a portion of the attendance area of the West Contra Costa Unified School District, which comprises 38 elementary schools (18 of which are located in the City), seven middle and junior high schools, and eight senior high schools (four of which are located in the City), three continuation and alternative high schools, and five charter schools, college preparatory and community day schools which had total K-12 enrollment of approximately 30,970 students for Fiscal Year 2017-18. In addition, several private schools operate in the City.

A-13 Institutions of higher education located near the City, include UC Berkeley, Contra Costa College, Diablo Valley College, Los Medanos College, the California Maritime Academy, California State University – East Bay, San Francisco State University, the University of San Francisco, the University of California at San Francisco, John F. Kennedy University, Saint Mary’s College, Dominican University, and Golden Gate University.

FINANCIAL OPERATIONS

Financial Policies and Practices

Financial Policies. The current financial policies of the City are summarized below and the City is in compliance with each policy. Each financial policy is subject to annual review and revision. Copies of the Cash Reserve Policy, Debt Policy, Swap Policy and Investment Policy can be obtained from the City’s website.

Cash Reserve Policy. In Fiscal Year 2004-05, the City Council adopted a policy to maintain structurally balanced budgets whereby one-time funds can be spent only on one-time uses and ongoing funds can be spent on ongoing (or one-time) uses and established a $10 million General Fund contingency reserve target.

The City Council adopted a cash reserve policy (the “Cash Reserve Policy”) that requires that the City maintain year-end contingency reserve balances in the General Fund, including CalPERS savings reserves but excluding departmental carryover, equal to a percentage of the next Fiscal Year’s budgeted General Fund expenditures. City Council approval is required before any withdrawals are made from the cash reserve and the City Council has discretion to use the cash reserve only for emergencies and not for on-going expenses. The Cash Reserve Policy permits the cash reserve to be temporarily reduced in times of an emergency with approval by the City Council, but requires that the cash reserve be restored in accordance with a stabilization policy laying out the plans for restoration of the reserve, in order to allow the City to build up its capacity to handle future short-term economic downturns or emergencies without cutting services.

In connection with the adoption of the Fiscal Year 2018-19 budget, the Cash Reserve Policy was amended to increase the maximum reserve from 7% to 15% of budgeted General Fund expenditures for the next Fiscal Year. The contingency reserve is shown as a component of unassigned fund balance within the General Fund.

For Fiscal Year 2017-18, the cash reserve was $15.4 million (approximately 9.7% of Fiscal Year 2018-19 Mid-Year Review General Fund expenditures) The Fiscal Year 2018-19 Mid-Year Budget Review estimates that the cash reserve is approximately $14.1 million.

Debt Policy. The City maintains a debt management policy (the “Debt Policy”) pertaining to its financings. The Debt Policy is intended to guide the Finance Department in its debt issuance and includes components such as the financing approval process, selection of the method of sale for various types of debt issues, general bond structuring parameters, selection of financing team members, permitted investments, on-going debt administration and post-issuance tax compliance procedures for tax-exempt bonds and Build America Bonds. The Debt Policy limits aggregate debt service payments funded from General Fund sources to no more than 10% of General Fund revenues and sets forth detailed debt management and refunding practices. Payments on bonds that are tied to a specified revenue stream other than General Fund sources are not subject to this 10% limit. In addition, the Debt Policy requires that no more than 20% of the City’s outstanding debt portfolio be comprised of unhedged short-term variable rate issues. The Debt Policy was most recently reviewed and adopted by the City Council on May 7, 2019.

A-14 Grant Management Policy. The City maintains a policy to establish an overall framework for the use and management of grant resources (the “Grant Management Policy”). This policy provides that: (i) aside from entitlement grants, the City should focus its efforts on securing grants for capital improvements; (ii) the City should only seek grants when sufficient staff resources are available to effectively administer the program in compliance with grant requirements and successfully perform the grant work scope and provide necessary matching requirements (both cash and in-kind matches); (iii) indirect costs of administering grant programs be recovered to the maximum extent feasible; (iv) operating departments will have the primary responsibility for seeking out grant opportunities, preparing the applications and managing grant programs after award; and (v) operating departments develop a simple system for tracking grant funding availability in their functional areas. The Grant Management Policy was most recently reviewed and adopted by the City Council in 2013.

Investment Policy. The City maintains an investment policy (the “Investment Policy”) which provides guidelines for the investment and management of pooled funds of the City, including the General Fund, Special Revenue, Debt Service, Capital Projects, Enterprise, Internal Service, Trust & Agency, Redevelopment, and other Funds of the City (each as defined in the Investment Policy) that are accounted for in the City’s Comprehensive Annual Financial Report. The Investment Policy establishes three criteria for selecting investment vehicles: safety, liquidity and yield. The Investment Policy states that an adequate percentage of the portfolio should be maintained in liquid short-term securities that can be converted to cash if necessary to meet disbursement requirements and that yield or “rate of return” on an investment should be a consideration only after the requirements of safety and liquidity are met. The Director of Finance is required to report monthly on the City’s pooled and bond funds to the City Manager and City Council and to report quarterly on other investments, such as pension funds.

The Investment Policy prohibits investments in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages, any security that could result in zero interest accrual if held to maturity, other than investments in authorized money market mutual funds, in companies involved in the manufacturing of tobacco and tobacco-related products, and in any funds in international financial instruments that benefitted from slavery.

The Investment Policy was most recently reviewed and approved by the City Council on October 2, 2018. A copy of the current Investment Policy is available on the City’s website.

Swap Policy. The City is authorized under California Government Code Section 5922 to enter into interest rate swaps to reduce the amount and duration of rate, spread, or similar risk when used in combination with the issuance of bonds. The City maintains an interest rate swap policy (the “Swap Policy”) regarding the utilization, execution, and management of interest rate swaps and related instruments. Periodically, but at least annually, the City reviews the Swap Policy and makes modifications as appropriate due to changes in the business environment or market conditions.

The Swap Policy was most recently reviewed and adopted by the City Council on October 2, 2018.

Financial Practices

Five-Year Financial Forecast. In connection with the adoption of its Fiscal Year 2019-20 budget, the City Council commissioned a General Fund Five-Year Financial Forecast (the “Financial Forecast”) for Fiscal Years 2019-20 through 2023-24 to serve as a planning tool for the long term sustainability of the City and its employees. The Financial Forecast is designed to create a long-range view for strategic decision making, align financial capacity with long-term service obligations, identify structural budget issues, understand the major drivers of revenues and expenditures, evaluate long-term impacts of current decisions, and analyze the fiscal impacts of varying scenarios. The Financial Forecast includes an

A-15 analysis of projected revenues, expenditures (including wage benefits and retirement obligations), reserves, capital projects and debt policies, and a review of fiscal policies.

Structural Balance Guideline. In connection with its budget preparations for Fiscal Year 2004-05, the City Council adopted a guideline to maintain structurally balanced budgets whereby one- time funds can be spent only on one-time uses and ongoing funds can be spent on ongoing (or one-time) uses. In addition, budget enhancements can be approved only if a new source of permanent revenues is received that will cover the future cost of such enhancements.

Pension Plans

Information regarding the City’s pension plans and other post-employment benefits is provided primarily for general reference regarding the City. The Wastewater Treatment Plant, the most significant and labor-intensive asset within the Enterprise, is privately managed. See “THE WASTEWATER ENTERPRISE” within the body of this Official Statement. There are 9.6 full-time equivalent employees assigned to the Enterprise (out of a total of 733.2 budgeted full-time equivalent City employees for Fiscal Year 2018-19) for which the City makes pension payments from Revenues of the Enterprise (such employees being under the Miscellaneous Plan discussed below). The unfunded pension liability related to the Enterprise is less than onepercent of the total unfunded liability.

The City contributes to a multiple-employer defined benefit retirement plan (“PERF”) administered by the California Public Employees’ Retirement System (“CalPERS”) on behalf of Enterprise employees.

GASB Accounting Standards. In 2012, GASB approved two new standards, Statement No. 67, Financial Reporting for Pension Plans (GASB 67) and Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68), with respect to pension accounting and financial reporting standards for state and local governments. These standards call for immediate recognition of more pension expense than was previously required. GASB 67 revises existing guidance for the financial reports of most pension plans and GASB 68 revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits. In 2014, GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (GASB 71) to address an issue regarding application of the transition provision of GASB 68. In 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (GASB 75). Summaries of these GASB Statements are set forth below.

GASB 67. GASB 67, which is effective for fiscal year beginning after June 15, 2013, replaces the requirements of GASB 25 and GASB 50 as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. GASB 67 enhances note disclosures and required supplementary information for both defined benefit and defined contribution pension plans. GASB 67 also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year required supplementary information schedules.

GASB 68. GASB 68, which is effective for fiscal years beginning after June 15, 2014, requires immediate recognition of annual service cost and interest on the pension liability and immediate recognition of the effect on the net pension liability of changes in benefit terms. Other components of pension expense will be recognized over a closed period that is determined by the average remaining service period of the plan members (both current and former employees, including retirees). These other components include the effects on the net pension liability of (i) changes in economic and demographic assumptions used to project benefits and (ii) differences between those assumptions and actual experience. Lastly, the effects on the net pension liability of differences between expected and actual investment returns will be recognized in pension expense over a closed five-year period.

A-16 GASB 71. GASB 71 amends paragraph 137 of GASB 68 to eliminate the source of potential significant understatement of restated beginning net position and expense in the first year of implementation of GASB 68 in the accrual-basis financial statements of employers and non-employer contributing entities.

GASB 75. GASB 75, which became effective during the year ended June 2018 is intended to improve the usefulness of information for decisions made by various users of the financial reports of governments whose employees – both active employees and inactive employees – are provided with postemployment benefits other than pensions by requiring recognition of the entire net OPEB liability and a more comprehensive measure of OPEB expense. The implementation of GASB 75 required the City to make prior period adjustments. As a result, certain net positions were restated. See Note 9.E.–“Fund Balances and Net Position–Net Position Restatements” of APPENDIX B–“CITY OF RICHMOND CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018.”

During Fiscal Year 2014-15, the City implemented GASB 68 and GASB 71. These new pension accounting standards respond to public interest about government pensions and provide new transparency about the City’s considerable pension obligations and their funding progress. As a result, Governmental Activities net position was restated by $321.6 million and Business-Type Activities net position was restated by $13 million changing the City’s total net position at July 1, 2014 from $209.7 million to a deficit $124.9 million and unrestricted net position from a deficit $152.1 million to a deficit $489.7 million. The majority of the restatement is due to a $337.4 million reduction to beginning net position to record the City’s new net pension liability and related deferred outflows of resources for pension contributions made during the prior year in accordance with the new pension accounting standards. Additionally, governmental activities net position was increased by a net $2.8 million due to adjustments made to various receivable balances. These restatements are fully discussed in Note 10F– “Fund Balance and Net Position–Restatement and Adjustments of Fund Balance and Net Position.” The new net pension liability of $209.3 million, representing an accounting measure of the City’s unfunded pension obligations, is presented as a new liability on the Statement of Net Position at June 30, 2018.

See Note 10–“Fund Balances and Net Position,” Note 11–“California Public Employees’ Retirement System Pension Plans,” and Note 12–“Other City Pension Plans” of APPENDIX B–“CITY OF RICHMOND CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018.”

Calculations made by CalPERS and the City-administered pension plans will be modified as these new standards are implemented. The City expects that all of the pension plans will initially report weaker funded ratios as GASB 67 and GASB 68 are phased in.

Pension Reform. On January 1, 2013, the “Public Employee Pension Reform Act of 2013” (“PEPRA”) took effect, which implemented lower defined-benefit formulas with higher retirement ages for new employees hired on or after that date and includes provisions to increase current employee contributions. Key changes to retirement plans affecting the City include: (i) commencing January 1, 2018, permitting the employer may unilaterally require employees to pay 50% of the total annual normal cost (i.e. the cost of service accrual for the upcoming Fiscal Year for active employees, in the absence of any surplus or unfunded liability, expressed as a percentage of payroll) up to an 8% contribution rate for Miscellaneous Plan employees and an 11% or 12% contribution rate for Safety Plan employees and employers are prohibited from paying any of the required employee contribution; (ii) eliminating the ability of an employer to provide better health benefits or health benefit vesting to non- represented employees than it does for represented employees; (iii) eliminating the ability of any public employee to purchase nonqualified service or “airtime,” unless an official application was received by the system prior to January 1, 2013; (iv) requiring the combined employer and employee contributions, in any fiscal year, to cover that year’s normal cost; (v) requiring both current and future public officials and

A-17 employees to forfeit pension and related benefits if they are convicted of a felony in carrying out official duties, in seeking an elected office or appointment, or in connection with obtaining salary or pension benefits, subject to certain requirements; (vi) limiting post retirement public employment by: (A) prohibiting working more than 960 hours or 120 days per year for any public employer; (B) requiring a 180-day “sit-out” period before a retiree could return to work except under certain circumstances; (C) requiring a one-year “sit-out” period for retirees who received either a golden handshake or some other employer incentive to retire; (D) prohibiting an individual receiving an industrial disability retirement from working for another public employer doing the same or substantially similar job; and (E) requiring a public retiree appointed to a full time State board or commission to suspend his or her retirement allowance and become a member of CalPERS; and (vii) requiring CalPERS (for plans it administers) to develop requirements for defining a significant increase in actuarial liability for a former employer due to excessive compensation paid by a subsequent public employer, and to develop a plan to assess the cost of that excess liability to the employer who paid the excessive compensation.

In addition to the above reforms, employees hired after December 31, 2012 are subject to: (i) a new benefit formula equal to 2% percent at 62 for Miscellaneous Plan employees with an early retirement age of 52 and a maximum benefit factor of 2.5% at 67 and for Safety Plan employees with a normal retirement age at 50 and a maximum retirement age at 57 with the defined benefit formula ranging from 1.426% at age 50 under the basic formula to 2.7% at age 57; (ii) a cap on pensionable salaries at the Social Security contribution and wage base of $110,100 (or 120% of that amount for employees not covered by Social Security), adjusted annually based on the CPI for All Urban Consumers; (iii) rules prohibiting a retirement board from administering, and a public employer from offering, a benefit replacement plan; (iv) a requirement that: (A) all public retirement systems in the State to adhere to the federal compensation limit when calculating retirement benefits for new members and (B) prohibit a public employer from making contributions to any qualified public retirement plan based on any portion of compensation that exceeds the limit; (iv) contributions equal to 50% of the total annual normal cost of pension benefits; (v) a requirement that compensation be defined as the normal rate of regular, recurring pay, excluding special bonuses, unplanned overtime, payouts for unused vacation or sick leave, and other special pay, provided that these requirements do not apply to the extent a system has adopted a more restrictive definition of compensation earnable; and (vi) a requirement that final compensation be defined as the highest average annual final compensation during a consecutive 36 month period, subject to the cap.

Costs for other post-employment benefits are not addressed in PEPRA. However, later retirement ages will help reduce such liabilities in the long-term.

California Public Employees’ Retirement System. The following information concerning CalPERS and PERF has been obtained from publicly available information on the CalPERS and State Treasurer websites. The City believes such information to be reliable, however the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information.

CalPERS does not prepare department specific information for its members. The following information related to the City includes costs for all City departments, including those funded by the General Fund.

The City contributes to PERF, a multiple-employer, public employee, defined benefit, pension plan. PERF provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of CalPERS’ annual financial

A-18 report may be obtained from their executive office: Lincoln Plaza North, 400 Q Street, Sacramento, California 95814.

The staff actuaries at CalPERS prepare annually an actuarial valuation which covers a Fiscal Year ending approximately 12 months before the actuarial valuation is prepared (thus, the actuarial valuation as of June 30, 2014 (the “CalPERS 2014 Actuarial Valuation”) was delivered to the City in October 2015). The actuarial valuation expresses the City’s required contribution rates in percentages of payroll, which percentages the City contributes in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City’s contribution rates derived from the CalPERS 2013 Actuarial Valuation, are effective for the City’s Fiscal Year 2016-17). CalPERS rules require the City to implement the actuary’s recommended rates.

Plan Description. All qualified permanent and probationary employees are eligible to participate in the City’s separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple- employer defined benefit pension plans administered by CalPERS, which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

Enterprise employees are eligible to participate in the Miscellaneous Plan and therefore the following discussion is limited to information with respect to the Miscellaneous Plan only.

Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

Employees of the City hired on or before December 31, 2012 participate in the Miscellaneous Plan under the 2.7% at age 55 Benefit Formula. PEPRA is applicable to employees new to CalPERS and hired after December 31, 2012. Employees at the City hired on or after January 1, 2013 participate under the Miscellaneous Plan 2.0% at age 62 Benefit Formula.

The Plans’ provisions and benefits in effect as of June 30, 2018, are summarized as follows:

Miscellaneous Prior to On or after Hire Date January 1, 2013 January 1, 2013 Benefit formula 2.7% at 55 2.0% at 62 Benefit vesting schedule 5 years service 5 years service Benefit payments Monthly for life Monthly for life Retirement age 50 – 55 52 – 55 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.0% to 2.5% Required employee contribution rates 8.00% 6.75% Required employer contribution rates 12.242% 12.242% Required UAL contribution $6,121,476

A-19 Beginning in Fiscal Year 2015-16, CalPERS collects employer contributions for the Miscellaneous Plan as a percentage of payroll for the normal portion as noted in the rates above and as a dollar amount for contributions toward the unfunded liability (UAL). The dollar amounts are billed on a monthly basis. The City’s required contributions for the unfunded liability in the Miscellaneous Plan was $6,121,476, as noted in the table above.

Employees Covered. As of the June 30, 2016 actuarial valuation date and the June 30, 2017 measurement date, the following employees were covered by the benefit terms for the Miscellaneous Plan:

Miscellaneous June 30, 2016 June 30, 2017 Inactive employees or beneficiaries currently receiving benefits 894 915 Inactive employees entitled to but not yet receiving benefits 511 509 Active employees 469 454 TOTAL 1,874 1,878

As of June 30, 2018, the City had 451 active employees in the Miscellaneous Plan, of which 9.6 were full-time equivalent employees of the Enterprise.

Contributions. The California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined annually by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

For Fiscal Year 2017-18, the actuarially determined contributions for the Miscellaneous Plan was $10,436,250.

Net Pension Liability. The City’s net pension liability for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability for the Miscellaneous Plan is measured as of June 30, 2017, using an annual actuarial valuation as of June 30, 2016 rolled to June 30, 2017 using standard update procedures.

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A-20 Actuarial Assumptions. For the measurement period ended June 30, 2017, the total pension liabilities were determined by rolling forward the June 30, 2016 total pension liability. The June 30, 2017 total pension liability was based on the following actuarial methods and assumptions:

Miscellaneous(1) Valuation Date June 30, 2016 Measurement Date June 30, 2017 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.15% Inflation 2.75% Payroll Growth 3.0% Projected Salary Increase 3.2% - 12.2%(2) Investment Rate of Return 7.50%(3) Mortality Derived using CalPERS Membership Data for all Funds(4) Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter ______(1) Actuarial assumptions are the same for all benefit tiers. (2) Depending on age, service and type of employment. (3) Net of pension plan investment expenses, including inflation. (4) The mortality table used was developed based on CalPERS’ specific data. The table includes five years of mortality improvements using Society of Actuaries Scale AA. For more details on this table, please refer to the CalPERS 2014 experience study report available on CalPERS website. Source: City of Richmond, Comprehensive Annual Financial Report for the Year Ended June 30, 2018.

All other actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be found on the CalPERS website under Forms and Publications.

Discount Rate. The discount rate used to measure the total pension liability was 7.15% for each Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.15% is applied to all plans in the Public Employees Retirement Fund (“PERF”). The stress test results are presented in a detailed report that can be obtained from the CalPERS website under the GASB 68 section.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

For additional information regarding the CalPERS plans see APPENDIX B–“CITY OF RICHMOND CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018–Note 10–“California Public Employees’ Retirement System Pension Plans.”

A-21 Changes in Net Pension Liability. The changes in the Net Pension Liability for the Miscellaneous and the Safety Plan as of June 30, 2016 measurement date are set forth in Table A-6A.

Table A-6 City of Richmond Changes in the Net Pension Liability Miscellaneous Plan (CalPERS)

Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) Balance at June 30, 2016 Measurement Date $446,234,376 $326,226,506 $120,007,870 Changes in the year: Service cost 8,053,459 8,053,459 Interest on the total pension liability 32,804,753 32,804,753 Differences between actual and expected experience (4,464,966) (4,464,966) Changes in assumptions 25,548,824 25,548,824 Changes in benefit terms Plan to plan resource movement (50,018) 50,018 Contribution – employer 8,860,295 (8,860,295) Contribution – employees 2,996,354 (2,996,354) Net investment income 35,805,938 (35,805,938) Administrative expenses (481,651) 481,651 Benefit payments, including refunds of employee contributions (25,074,448) (25,074,448) Net Changes 36,867,622 22,056,470 14,811,152 Balance at June 30, 2017 Measurement Date $483,101,998 $348,282,976 $134,819,022 ______Source: City of Richmond, Comprehensive Annual Financial Report for the Year Ended June 30, 2018.

Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City for the Miscellaneous Plan, calculated using the discount rate for the Miscellaneous Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is one-percentage point lower or one-percentage point higher than the current rate:

Miscellaneous 1% Decrease 6.15% Net Pension Liability $195,707,528

Current Discount Rate 7.15% Net Pension Liability $134,819,022

1% Increase 8.15% Net Pension Liability $84,290,283 ______Source: City of Richmond, Comprehensive Annual Financial Report for the Year Ended June 30, 2018.

Subsequent Change in Discount Rate. In December 2016, the CalPERS Board of Directors voted to lower the discount rate used in its actuarial valuations from 7.5% to 7.0% over three fiscal years, beginning in Fiscal Year 2017-18. The change in the discount rate will affect the contribution rates for employers beginning in Fiscal Year 2018-19 and result in increases to employers’ normal costs and unfunded actuarial liabilities.

A-22 Other Post-Employment Benefits

In addition to the retirement and pension benefits described above, the City provides postemployment medical and dental benefits (“OPEB Obligations”). In order to qualify for these benefits an employee must retire from the City and maintain enrollment in one of the City’s eligible health plans. The City pays a portion of the CalPERS premiums for retirees and their dependents that vary by employment classification. In addition, certain eligibility rules and contribution requirements apply for future retirees, followed by current retirees as specified in City ordinances. For information regarding the eligibility rules and contribution requirements for each bargaining unit, see APPENDIX B–“CITY OF RICHMOND CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018–Note 12–Other Postemployment Benefits.”

The City membership in this plan varies based on the employee bargaining group. As of the June 30, 2017 valuation date, membership in this plan consisted of 1,278 members (627 active employees electing coverage, 44 active employees waiving coverage, and 607 retiree and beneficiaries receiving benefits).

Funding Policy and Actuarial Assumptions. During Fiscal Year 2007-08, the City joined the Public Agencies Post-Retirement Health Care Plan, an agent multiple employer trust administered by Public Agency Retirement Services (“PARS”). The balance in the City’s PARS trust account as of June 30, 2018 was $17,422,879. PARS issues a publicly available financial report that includes financial statements and required supplementary information. A copy of the PARS financial report may be obtained from the Public Agency Retirement Services, 4350 Von Karman Avenue, Suite 100, Newport Beach, California 92660.

The City’s policy is to partially prefund these benefits by accumulating assets with PARS discussed above along with making pay-as-you-go payments pursuant to Resolution No. 52-06 dated as of June 27, 2006. In July 2016, the City adopted an additional funding policy to place into the PARS trust half of any one-time revenues and half of any year-end surplus in excess of the City’s minimum reserve policy in an effort to pay down the unfunded liability. In accordance with the policy, the City transferred $3.175 million to the PARS trust during Fiscal Year 2017-18 along with an additional contribution of $4,328,063.

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A-23 Actuarial Assumptions. The total OPEB liability was determined by an actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 using standard update procedures. The valuation used the following actuarial assumptions applied to all periods included in the measurement, unless otherwise specified:

Actuarial Assumptions Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry Age Normal Cost, level percent of pay Actuarial Assumptions: Discount Rate 4.12% Inflation 2.75% CPI Medical Care 4.00% Payroll Growth 3.00% Investment Rate of Return 6.85% Index Rate for 20 year, tax exempt municipal bonds 3.62% Mortality Based on assumptions for Public Agency Miscellaneous, Police and Fire members published in the December 2017 CalPERS Experience Study Healthcare Cost Trend Rates 6.90% for 2018, 6.30% for 2019, 5.80% for 2020, 5.20% for 2021-2054, transition to ultimate rate of 4.40% in 2074 and further years Health – NO Medicare Eligible 5.60% for 2018, 5.40% for 2019, 5.30% for 2020, 5.20% for 2021-2054, transition to ultimate rate of $.40% in 2074 and further years Dental To increase 4.00% annually Vision To increase 3.00% annually

The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

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A-24 Changes in Net OPEB Liability. The changes in the net OPEB liability follows:

Increase (Decrease) Plan Net OPEB Total OPEB Fiduciary Liability/ Liability Net Position (Asset) (a) (b) (a) – (b) Balance at June 30, 2017 $191,472,282 $9,336,893 $182,135,389 Changes Recognized for the Measurement Period: Service Cost 6,730,397 6,730,397 Interest on the total OPEB liability 7,927,217 7,927,217 Changes in benefit terms 0 Differences between expected and actual experience (2,816,969) (2,816,969) Changes of assumptions 8,715,168 8,715,168 Contributions from the employer 13,599,120 (13,599,120) Contributions from the employee 765,475 (765,475) Net investment income 632,089 (632,089) Administrative expenses (49,169) 49,169 Benefit payments† (6,861,529) (6,861,529) 0 Net changes 13,694,284 8,085,986 5,608,298 Balance at June 30, 2018 (Measurement Date) $205,166,566 $17,422,879 $187,743,687 ______† Benefit payments are comprised of $3,947,832 direct subsidy payments to retirees and $2,913,697 estimated implicit subsidy costs incurred during the measurement period ending June 30, 2018.

Sensitivity of the Net OPEB Liability to Changes in the Discount Rate and Healthcare Cost Trend Rates. The following presents the net OPEB liability of the City, as well as what the City’s net OPEB liability would be if it were calculated using the discount rate that is one-percentage point lower or one percentage point higher than the current discount rate:

Net OPEB Liability/(Asset) Discount Rate – 1% Discount Rate Discount Rate +1% (3.12%) (4.12%) (5.12%) $218,312,924 $187,743,687 $162,834,832

The following presents the net OPEB liability of the City, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage point lower or one percentage point higher than the current healthcare cost trend rates:

Net OPEB Liability/(Asset) Healthcare Cost Trend Current Trend Rates Various - 1% Decrease see assumptions above 1% Increase $165,359,439 $187,743,687 $215,505,846

A-25 Risk Management

The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; general liability; errors and omissions; injuries to employees; natural disasters; and inverse condemnation. In April 2009, the City joined the California State Association of Counties Excess Insurance Authority (the “CSAC-EIA”) for worker’s compensation insurance. In July 2009, the City joined the California Joint Powers Risk Management Authority (“CJPRMA”) for general liability and employment practices coverage. The City has chosen to establish a risk financing internal service funds where assets are accumulated for claim settlements associated with the above risks of loss up to certain limits.

Excess coverage for the risk categories excluding inverse condemnation is provided by policies with various commercial insurance carriers. The City is insured with various commercial carriers for risks including: cyber liability; difference in conditions – earthquake (provides supplemental insurance coverage for perils (earthquake) excluded from standard commercial property insurance policies) and earthquake sprinkler leakage; excess workers’ compensation; general liability, general liability – special events program; pollution liability; Port liability; property, boiler and machinery; and public employee dishonesty. Information regarding current insurance coverage can be obtained by contacting the City.

See also APPENDIX B-“CITY OF RICHMOND CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018–Note 14–Risk Management–Liability for Self-Insured Claims.”

CJPRMA. The CJPRMA provides coverage against liability ($500,000 deductible with a coverage limit of $40 million) and employment practices ($500,000 deductible with a coverage limit of $10 million) under the terms of a joint-powers agreement with the City.

Once the City’s self-insured retention for general liability claims is met, CJPRMA becomes responsible for reimbursements of payments for future expenses related to the claim. The City paid contributions in the amount of $932,564 for the year ended June 30, 2018. Actual surpluses are allocated to members based on an actuarial study and losses are allocated on the basis of each member’s share of cash contributions.

Audited financial statements for the CJPRMA are available from CJPRMA, 3201 Doolan Road, Suite 285, Livermore, California 94551.

CSAC EIA. CSAC EIA is a public entity risk pool of cities and counties within Northern California. The CSAC EIA provides workers’ compensation coverage up to the California statutory limit, and the City retains a self-insured retention of $750,000. Loss contingency reserves established by the CSAC EIA are funded by contributions from member agencies. The City pays an annual contribution to the CSAC EIA, which includes its pro-rata share of excess insurance premiums, charges for pooled risk, claims adjusting and legal costs, and administrative and other costs to operate the risk pool. The City paid contributions in the amount of $342,738 for the year ended June 30, 2018. CSAC EIA provides insurance through the pool up to $10,000, beyond which group purchased commercial excess insurance is obtained. CSAC EIA has never made an additional assessment and is currently fully funded. No provision has been made on the financial statements of the City for liabilities related to possible additional assessments.

Audited financial statements for CSAC EIA are available from CSAC EIA, 75 Iron Point Circle, Suite 200, Folsom, California 95630.

A-26

APPENDIX B

COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2018

The following Appendix B contains is the complete comprehensive annual financial report for the City for the Fiscal Year ended June 30, 2018. Only Net Revenues of the Enterprise are pledged to make payments on the Series 2019 Bonds. The inclusion of the complete comprehensive annual financial report for the City does not imply that any revenues other than Net Revenues of the Enterprise are pledged to make any payments on the Series 2019 Bonds. See “SECURITY AND SOURCES OF PAYMENT OR THE BONDS” in the front of this Official Statement.

B-1 *** Revised CAFR ***

The following revisions were made to the City of Richmond Comprehensive Annual Financial Report For The Year Ended June 30, 2018:

 Page 81 – Revised date the city entered into capital lease with Bank of America. From: December 22, 2010 To: December 1, 2010.

 Page 88 – Revised semi‐annual interest payment dates. From: “…2025 for the Series 2009A and through 2020 for the Series 2009B Bonds.” To: “…July 1, 2024 for the Series 2009A and through July 1, 2019 for the Series 2009B Bonds.”

 Page 148 – Revised outstanding principal balance of 2003 Series A Bonds that was refunded and defeased. From: $12,910,000 To: $13,290,000 Richmond California Comprehensive Annual Financial Report For The Year Ended June 30, 2018

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City of Richmond California

Comprehensive Annual Financial Report

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Fiscal Year Ended June 30, 2018

Prepared by the Finance Department

Belinda Warner Finance Director/Treasurer

CITY OF RICHMOND COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2018

TABLE OF CONTENTS Page

INTRODUCTORY SECTION

Letter of Transmittal ...... i Organizational Chart ...... vii List of Elected and Appointed Officials ...... viii

FINANCIAL SECTION

Independent Auditor’s Report ...... 1 Management’s Discussion and Analysis...... 5

BASIC FINANCIAL STATEMENTS:

Government-wide Financial Statements: Statement of Net Position ...... 20 Statement of Activities ...... 22

Fund Financial Statements: Balance Sheet – Governmental Funds ...... 26 This Page Left Intentionally Blank Reconciliation of the Governmental Funds – Balance Sheet with the Statement of Net Position ...... 27 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds ...... 28 Reconciliation of the Net Change in Fund Balances – Total Governmental Funds with the Statement of Activities ...... 29 Statement of Net Position – Proprietary Funds ...... 32 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds ...... 33 Statement of Cash Flows – Proprietary Funds ...... 34 Statement of Fiduciary Net Position – Fiduciary Funds ...... 36 Statement of Changes in Fiduciary Net Position – Fiduciary Funds ...... 37

Notes to Financial Statements: (1) Organization and Definition of Reporting Entity ...... 39 (2) Summary of Significant Accounting Policies ...... 42 (3) Cash and Investments ...... 49 (4) Interfund Transactions ...... 56 (5) Notes and Loans Receivable ...... 59 (6) Capital Assets ...... 66 (7) Long Term Debt Obligations ...... 69 (8) Unavailable Revenue and Unearned Revenue ...... 94

CITY OF RICHMOND CITY OF RICHMOND COMPREHENSIVE ANNUAL FINANCIAL REPORT COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2018 FISCAL YEAR ENDED JUNE 30, 2018

TABLE OF CONTENTS TABLE OF CONTENTS Page Page

Notes to Financial Statements (Continued): SUPPLEMENTARY INFORMATION: (9) Fund Balances and Net Position ...... 94 (10) California Public Employees’ Retirement System Pension Plans ...... 98 Combining and Individual Fund Statements and Schedules: (11) Other City Pension Plans ...... 106 Combining Balance Sheets – Nonmajor Governmental Funds ...... 174 (12) Other Postemployment Benefits ...... 117 Combining Statements of Revenues, Expenditures and Changes in (13) Deferred Compensation Plan ...... 126 Fund Balances – Nonmajor Governmental Funds ...... 178 (14) Risk Management ...... 126 Combining Schedules of Revenues, Expenditures and Changes in (15) Segment Information for Enterprise Funds ...... 129 Fund Balances – Budget and Actual – Budgeted Nonmajor Funds ...... 182 (16) Commitments and Contingencies ...... 131 Combining Statements of Net Position – Nonmajor Enterprise Funds ...... 190 (17) Redevelopment Agency Dissolution and Successor Agency Activities ...... 138 Combining Statements of Revenues, Expenses and Changes in (18) Subsequent Events ...... 152 Fund Net Position – Nonmajor Enterprise Funds ...... 191 Combining Statements of Cash Flows – Nonmajor Enterprise Funds ...... 192 REQUIRED SUPPLEMENTAL INFORMATION: Combining Statements of Net Position – Internal Service Fund ...... 194 Combining Statements of Revenues, Expenses and Changes in Budgetary Comparison Schedule – General Fund ...... 157 Net Position – Internal Service Funds ...... 195 Budgetary Comparison Schedule – Community Development and Loan Programs Combining Statements of Cash Flows – Internal Service Funds ...... 196 Special Revenue Fund ...... 158 Combining Statement of Net Position – Pension and OPEB Trust Funds ...... 198 Notes to Budgetary Comparison Schedules ...... 159 Combining Statement of Changes in Net Position – Pension and OPEB Trust Funds ...... 199 Schedule of Changes in the Net Pension Liability and Related Ratios – Miscellaneous Plan ..... 160 Combining Statement of Net Position Private Purpose Trust Funds ...... 200 Schedule of Contributions – Miscellaneous Plan ...... 161 Combining Statement of Changes in Net Position Schedule of Changes in the Net Pension Liability and Related Ratios – Safety Plan ...... 162 Private Purpose Trust Funds ...... 201 Schedule of Contributions – Safety Plan ...... 163 Sub-Combining Schedule of Net Position of the Successor Agency Schedule of Changes in the Net Pension Liability and Related Ratios: to the Richmond Community Redevelopment Agency ...... 202 General Pension Plan ...... 164 Sub-Combining Schedule of Changes in Net Position of the Successor Police and Firemen’s Pension Plan ...... 165 Agency to the Richmond Community Redevelopment Agency ...... 204 Garfield Pension Plan ...... 166 Combining Statement of Changes in Assets and Liabilities – Schedule of Contributions: Agency Funds ...... 208 Police and Firemen’s Pension Plan ...... 167 General Pension Plan ...... 167 STATISTICAL SECTION Garfield Pension Plan ...... 167 Schedule of Investment Returns: Police and Firemen’s Pension Plan ...... 168 Net Position by Component Last Ten Fiscal Years ...... 214 General Pension Plan ...... 168 Garfield Pension Plan ...... 168 Changes in Net Position Last Ten Fiscal Years ...... 216 Other Post-Employment Benefits Plan Schedules: Schedule of Changes in the Net OPEB Liability and Related Ratios ...... 169 Fund Balances of Governmental Funds Last Ten Fiscal Years ...... 218 Schedule of Plan Contributions ...... 170 Schedule of Investment Returns ...... 170 Changes in Fund Balance of Governmental Funds Last Ten Fiscal Years ...... 220

Assessed and Estimated Actual Value of Taxable Property Last Ten Fiscal Years ...... 222

Property Tax Rates - All Overlapping Governments Last Ten Fiscal Years ...... 224

CITY OF RICHMOND COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2018

TABLE OF CONTENTS Page

STATISTICAL SECTION (Continued)

Principal Property Tax Payers Current Year and Nine Years Ago ...... 226

Property Tax Levies and Collections Last Ten Fiscal Years ...... 227

Utility Users Tax Collections Last Ten Fiscal Years ...... 228

Utility Users Tax Direct Rates ...... 229

Top Ten Utility Users Taxpayers ...... 230

Ratio of Outstanding Debt by Type Last Ten Fiscal Years ...... 231

Revenue Bond Coverage 1999, 2006, 2008, 2010A, 2010B and 2017A Wastewater Revenue Bonds Last Ten Fiscal Years ...... 232

Revenue Bond Coverage 1996, 1999, 2004, 2007 and 2009 Port Terminal Lease Revenue Bonds, Note and Point Potrero Lease Revenue Bonds Last Ten Fiscal Years ...... 233

General Bonded Debt – Pension Obligation Bonds Last Ten Fiscal Years ...... 234

Bonded Debt Pledged Revenue Coverage Tax Allocation Bonds and Refunding Bonds Last Ten Fiscal Years ...... 235

Computation of Direct and Overlapping Debt ...... 236

Computation of Legal Bonded Debt Margin ...... 237

Demographic and Economic Statistics Last Ten Calendar Years ...... 238

Principal Employers Current Year and Nine Years Ago ...... 239

Full-Time Equivalent City Government Employees by Function Last Ten Fiscal Years ...... 240

Operating Indicators by Function/Program Last Ten Fiscal Years ...... 241

Capital Asset Statistics by Function/Program Last Ten Fiscal Years ...... 242

Strategic Support • Received the Distinguished Budget Presentation Award for fiscal year 2017-18 from the Government Finance Officers Association (GFOA). • Received the California Society of Municipal Finance Officers (CSMFO) Operating Budget Excellence Award and Capital Budgeting Excellence Award the fiscal year 2017- 18.

Long-Term Financial Plan • Adhered to the Debt Policy which reflects general debt service cannot exceed 10% of General Fund Revenue. • Increased Cash Reserve Policy from 7% to 15%

ACKNOWLEDGEMENTS

The preparation of this CAFR represents the culmination of a concerted team effort by the entire staff of the Finance Department. They should be commended for their professionalism, dedication, efficiency, and their personal commitment and determination demonstrated through long days of focusedattention to produce thisexemplary document.

In addition, staffin all City departments should be recognized forresponding so positively to the requests for detailed information that accompanies each annual audit. The role of Maze & Associates, Certified Public Accountants, should also be acknowledged as a significant This Page Left Intentionally Blank contribution to a fine product. Finally, we wish to express our sincere appreciation to the Mayor and City Council forproviding policy direction and a firm foundation of support for the pursuit of excellence in all realms of professional endeavors.

Respectfullysubmitted, ft)__

Vl City of Richmond FY2017-18 Organizational Chart

Citizens of Richmond

Mayor and City Council Tom Butt

vii City Clerk City Manager City Attorney Police Commission

Program Development Agenda Prep Contract Review Investigate Complaints & City Council Policy Resolutions Court Appearances Appeals Pt. Molate Ordinances Legal Opinions Review RPD Policy Contracts Transportation Division Appeal Hearings Health in All Policies

Human Police Finance Planning & Bldg Water Resource Housing Information Housing Employment & Resources Department Department Services Recovery Authority Technology Department Training

Dept. of Library & Office of Fire Engineering & Community Infrastructure Cultural Rent Control Neighborhood Port Department CIP Services Maintenance & Services Safety Operations CITY OFFICIALS

JUNE 26, 2018

CITY COUNCIL

Mayor ….…………………………………..……………………………………………………………………………………………….………………………….……..……………...... Tom Butt

Vice Mayor ...….………………………………………………….……………………….……..…..…...... Melvin Willis

Councilmember ………………………………..……………………………………………………….………………………………………………………...………...... Jovanka Beckles

Councilmember ………….…………………………………….………………………………………………...... Ben Choi

Councilmember ….……………………………………..…….…………………………………………………………………………………………………………………...... Eduardo Martinez

Councilmember ………….………………………………….…...... Jael Myrick

Councilmember ...………………………………….………....…….....………………………………………………………………………………………………...... ……..Ada Recinos

ADMINISTRATION AND DEPARTMENT HEADS

City Manager ……………………………...... …………...... ……………………………………………………………………………………………………………………… Bill Lindsay

Capital Improvement Director...... Yader Bermudez

viii City Attorney …………………...... ……………………………...... Bruce Goodmiller

City Clerk ………………………...…………………………...... ……………………………………………………………………………………….……..……...... Pamela Christian

Community Services Director...... Rochelle Monk

Employment & Training Director ……………………….…...... ….……..…………………………………………………………………………………………………...…….…. Sal Vaca

Finance Director/Treasurer …...... ………...... Belinda Warner

Fire Chief…....…...... …….……………………………………………………………………………………………………………….……………………….……. Adrian Sheppard

Housing Authority Director...... Vacant

Human Resources Director ……………...... ………………………………………………………………………………..……….………………………………...... Lisa Stephenson

Information Technology Director …………………….……………………………………………………………………………………………………………………………....… Sue Hartman

Infrastructure Maintenance & Operations Director...... Tim Higares

Library and Cultural Services Director ……………….…...... Katy Curl

Planning Director...... Richard Mitchell

Police Chief...... Allwyn Brown

Port Director...... Jim Matzorkis

Rent Control Executive Director...... Nicolas Traylor

Water Resource Recovery Manager...... Ryan Smith INDEPENDENT AUDITOR’S REPORT

To the Honorable Mayor and City Council City of Richmond, California

Report on Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Richmond, California, as of and for the year ended June 30, 2018, and the related notes to the financial statements. We were engaged to audit the financial statements of the aggregate discretely presented component units. These financial statements collectively comprise the City’s basic financial statements as listed in the Table of Contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility This Page Left Intentionally Blank Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Because of the matter described in the “Basis for Disclaimer of Opinion” paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the business- type activities, Richmond Housing Authority Enterprise Fund and the aggregate discretely presented component units.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Except for the matter described in the “Basis for Disclaimer of Opinion on the Business-Type Activities, Richmond Housing Authority Enterprise Fund and the Aggregate Discretely Presented Component Units” paragraph, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

1 Summary of Opinions Emphasis of Matters

Opinion Unit Type of Opinion General Fund Cash and Fund Balance and Other Funds Cash Balances Governmental Activities Unmodified Business-Type Activities Disclaimer The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the City as a going Aggregate Discretely Presented Component Units Disclaimer concern. However, as of June 30, 2018, the General Fund’s unrestricted cash balance represented General Fund Unmodified approximately thirty-five days of General Fund expenditures, unassigned fund balance represents Community Development and Loan Programs Special Revenue Unmodified available fund balance and equates to approximately forty days of General Fund expenditures. In Major Enterprise Funds: addition, the Richmond Housing Authority Enterprise Fund, Port of Richmond Enterprise Fund, other Richmond Housing Authority Disclaimer Non-Major Enterprise Funds and Non-Major Governmental Funds had borrowed $32.9 million from the Port of Richmond Unmodified General Fund and other funds. As a result of the interfund borrowing, City-wide, the City has a total of Municipal Sewer Unmodified only $36.6 million of unrestricted cash as of June 30, 2018. If deficit spending continues in the funds that Aggregate Remaining Fund Information Unmodified continue to borrow from the General Fund and other funds, it reduces the likelihood that the City will be able to continue as a going concern. Basis for Disclaimer of Opinion on the Business-Type Activities, Richmond Housing Authority Enterprise Fund and the Aggregate Discretely Presented Component Units The emphasis of this matter does not constitute a modification to our opinions.

The financial statements of the Richmond Housing Authority and RHA Properties, RHA Housing Change in Accounting Principles Corporation and RHA RAD LLC have not been audited for the year ended June 30, 2018. The Richmond Housing Authority’s financial activities are included in the City’s basic financial statements as a major Management adopted the provisions of Governmental Accounting Standards Board Statement No. 75, enterprise fund and represent 14.65%, 30.92% and 40.67% of the assets, net position, and revenues, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, which became respectively, of the City’s business-type activities. The financial activities of RHA Properties, RHA effective during the year ended June 30, 2018 and required a prior period adjustment to the financial Housing Corporation and RHA RAD LLC are included in the City’s financial activities as discretely statements and required the restatement of net position as discussed in Note 9E. presented component units and represent the City’s only discretely presented component units. The emphasis of this matter does not constitute a modification to our opinions. Disclaimer of Opinion Other Matters Because of the significance of the matter described in the “Basis for Disclaimer of Opinion on the Business-Type Activities, Richmond Housing Authority Enterprise Fund and the Aggregate Discretely Required Supplementary Information Presented Component Units” paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the Business-Type Accounting principles generally accepted in the United States of America require that Management’s Activities, Richmond Housing Authority Enterprise Fund and the Aggregate Discretely Presented Discussion and Analysis and other Required Supplementary Information as listed in the Table of Contents Component Units of the City. Accordingly, we do not express an opinion on these financial statements. be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers Unmodified Opinions it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required In our opinion, the financial statements referred to above present fairly, in all material respects, the supplementary information in accordance with auditing standards generally accepted in the United States respective financial position of the governmental activities, the General Fund, the Community of America, which consisted of inquiries of management about the methods of preparing the information Development and Loan Programs Special Revenue Fund, the Port of Richmond Enterprise Fund, the and comparing the information for consistency with management’s responses to our inquiries, the basic Municipal Sewer Enterprise Fund, and the aggregate remaining fund information of the City as of June financial statements, and other knowledge we obtained during our audit of the basic financial statements. 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for We do not express an opinion or provide any assurance on the information because the limited procedures the year then ended in accordance with accounting principles generally accepted in the United States of do not provide us with sufficient evidence to express an opinion or provide any assurance. America. Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The Introductory Section, Supplemental Information, and Statistical Section as listed in the Table of Contents are presented for purposes of additional analysis and are not required parts of the basic financial statements.

2 3 The Supplemental Information is the responsibility of management and was derived from and relates MANAGEMENT’S DISCUSSION AND ANALYSIS directly to the underlying accounting and other records used to prepare the basic financial statements. Fiscal Year Ended June 30, 2018 The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information This narrative overview and analysis of the City of Richmond’s (the “City”) Basic Financial Statements directly to the underlying accounting and other records used to prepare the basic financial statements or to for the fiscal year ended June 30, 2018. We encourage readers to consider the information presented here the basic financial statements themselves, and other additional procedures in accordance with auditing in conjunction with the accompanying transmittal letter, basic financial statements and notes to the standards generally accepted in the United States of America. In our opinion, the Supplemental financial statements. Information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. FINANCIAL HIGHLIGHTS The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any  The City’s total net position decreased by $2.1 million during the fiscal year attributed to a $4.7 assurance on them. million decrease in governmental and $2.6 million increase in business-type activities, after restatement. Other Reporting Required by Government Auditing Standards  The liabilities and deferred inflows of the governmental activities of the City exceeded its assets and In accordance with Government Auditing Standards, we have also issued our report dated May 17, 2019, deferred outflows at the close of the most recent fiscal year by $316.3 million (net deficit). on our consideration of the City’s internal control over financial reporting and on our tests of its Alternatively, the assets and deferred outflows of the business-type activities of the City exceeded its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other liabilities and deferred inflows by $49.8 million. matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control  At June 30, 2018, the City’s unrestricted net deficit (governmental and business-type activities) over financial reporting or on compliance. That report is an integral part of an audit performed in totaled $652.9 million, a $120 million or 24% decrease from prior year after the GASB 75 accordance with Government Auditing Standards in considering the City’s internal control over financial restatement. The unrestricted net deficits represent the net unfunded liabilities of the government. reporting and compliance. Over time, increases and decreases in this account will allow the reader to determine if the City’s condition is improving or deteriorating. Restricted net position for governmental and business-type activities increased by a net $10.6 million to $96.9 million.

 The City’s financial statements include a disclaimer of opinion on the financial statements of the Pleasant Hill, California Richmond Housing Authority Enterprise Fund (“RHA”), a blended component unit included in the May 17, 2019 City’s business-type activities, and three discretely presented component units, RHA Properties, RHA Housing Corporation and RHA RAD LLC. As of June 30, 2018, the net position of RHA is $15.4 million or 31% of the City’s business-type activities. Additional information about the disclaimer of opinion can be found in the Independent Auditor’s Report.

 The City’s General Fund contingency reserve policy increased to the minimum 15% of the General Fund’s next year’s budgeted appropriations or $23.3 million and the balance was $17.5 million at June 30, 2018.

 The Net Pension Liability of $340.8 million, representing an accounting measure of the City’s unfunded pension obligation, increased by $42.2 million from $298.6 million. The City reports $187.7 million in the Other Post-Employment Benefit (OPEB) liability for this fiscal year which is an increase of $132.2 million from the $55.5 million obligation reported in the prior year. The increase represents the current year implementation of the GASB Statement No. 75. During fiscal 2018, the City issued $33.5 million of Wastewater revenue bonds, series 2017A to refund the 2006A bond.

 The City’s General Fund revenue and other financing sources (uses) exceeded expenditures by $214 thousand in fiscal year 2018. This is primarily attributable to tax and service fee revenues in excess of expectations for the year.

4 5  Prior to the restatement, the City’s total government-wide net position decreased by $127 million in Because the focus of governmental funds is narrower than that of the government-wide financial fiscal year 2018, a 48% percent decrease, primarily due to the implementation of GASB 75, statements, it is useful to compare the information presented for governmental funds with similar Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing OVERVIEW OF FINANCIAL STATEMENTS decisions. Both the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate the The City’s basic financial statements are comprised of government-wide financial statements, fund comparison between governmental funds and governmental activities. financial statements, and notes to the financial statements. This report also contains other required supplementary information in addition to the basic financial statements themselves. The City has 20 governmental funds, of which two are considered major funds for presentation purposes. Each major fund is presented separately in the governmental fund balance sheet and in the governmental Government-Wide Financial Statements fund statement of revenues, expenditures, and changes in fund balances. The City’s two major funds are the General Fund and the Community Development and Loan Programs Special Revenue Fund. The The government-wide financial statements are designed to provide readers with a broad overview of the basic governmental fund financial statements can be found on pages 26-29 of the financial report. Data City’s finances, in a manner similar to private-sector business. from the other eighteen governmental funds are combined into a single, aggregated presentation and separately on pages 174-187 of the financial report. The Statement of Net Position presents information on all of the City’s assets, deferred outflows of resources, liabilities and deferred inflows of resources with the difference between the four reported as Proprietary Funds – Proprietary funds of the City are two types: (1) enterprise funds; and (2) internal net position. Over time, increases or decreases in net position may serve as a useful indicator of whether service funds. The City maintains six enterprise funds that provide the same type of information as the the financial position of the City is improving or deteriorating. government-wide financial statements, only in more detail. The City maintains four internal service funds to account for its vehicle operations, risk management program, police telecommunications and The Statement of Activities presents information showing how the government’s net position changed compensated absences. The proprietary fund financial statements can be found on pages 32-34. during the fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Fiduciary Funds – Fiduciary funds are used to account for resources held for the benefit of third parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements Both of the government-wide financial statements distinguish functions of the City that are principally because the resources of those funds are not available to support the City’s own programs. The fiduciary supported by taxes and grants, governmental activities, and business-type activities, which are intended funds for the City consist of Pension Trust Funds, OPEB Plan Trust Fund, Pt. Molate Private-Purpose to recover all or a significant portion of their costs through user fees and charges. The City’s activities Trust Fund, Successor Agency to the Richmond Community Redevelopment Agency Private-Purpose include five blended component units which consist of the Richmond Housing Authority, Richmond Trust Fund and Agency Funds. The fiduciary funds financial statements for these funds can be found on Joint Powers Financing Authority, Richmond Neighborhood Stabilization Corporation, Richmond pages 36-37. Surplus Property Authority and Richmond Parking Authority. Although legally separate, the City is financially accountable for the activities of these entities which are therefore shown as blended as part of The notes provide additional information that is essential to a full understanding of the data provided in the primary government. the government-wide and fund financial statements. The notes to the financial statements can be found on pages 39 through 153 of this report. RHA Properties, RHA Housing Corporation and RHA RAD LLC are discretely presented component units of the City that are legally separate reporting entities but are important because the City is financially accountable for them. The government-wide financial statements can be found on pages 20-23 of the financial report. Fund Financial Statements Fund Financial statements are designed to report information about the groupings of related accounts that are used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds – Governmental funds focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in determining what financial resources are available in the near future to finance the City’s programs.

6 7 GOVERNMENT-WIDE FINANCIAL ANALYSIS Government-wide Activities

Government-wide Net Position The following table indicates the changes in net position for governmental and business-type activities: This Comparative financial information includes the long-term and short-term information about the City’s overall financial condition. Below to provide the reader with highlights of changes from the prior City of Richmond's Changes in Net Position year. For the Years Ended June 30, 2018 and 2017 (in thousands) City of Richmond's Net Position June 30, 2018 and 2017 Governmental Business-type (in thousands) Activities Activities Totals FY2018 FY2017* FY2018 FY2017* FY2018 FY2017* Governmental Revenues: Activities Business-type Activities Totals Program revenues: FY2018 FY2017* FY2018 FY2017* FY2018 FY2017* Charges for services$ 36,688 31,140$ 38,656$ $ 37,890 $ 75,344 $ 69,030 Assets: Operating grants/contributions 20,557 16,083 26,099 22,637 46,656 38,720 Current assets$ 172,445 $ 155,165 $ 44,774 $ 23,855 $ 217,219 $ 179,020 Capital grants/contributions 10,471 14,009 1,155 970 11,626 14,979 Capital assets 308,629 312,291 184,818 176,254 493,447 488,545 General revenues: Property taxes-current collections 59,442 56,589 59,442 56,589 Total Assets 481,074 467,456 229,592 200,109 710,666 667,565 Sales taxes 44,475 41,620 44,475 41,620 Utility user taxes 46,080 44,966 46,080 44,966 Deferred Outflows of Resources: Documentary transfer taxes 6,486 7,453 6,486 7,453 Deferred outflows related to pensions 74,812 63,388 2,725 2,993 77,537 66,381 Other taxes 6,145 5,329 6,145 5,329 Unrestricted Intergovernmental 59 49 59 49 Deferred outflows related to OPEB 6,699 354 7,053 Use of money and property 7,001 12,230 3,431 3,549 10,432 15,779 Deferred charge on refunding 3,928 5,094 3,928 5,094 Pension stabilization revenue 886 - 886 Total Deferred Outflows of Resources 81,511 63,388 7,007 8,087 88,518 71,475 Gain on sale of capital assets 39 65 39 65 Other 4,196 5,139 4,196 5,139 Total revenues 241,639 235,558 69,341 65,046 310,980 300,604 Liabilities: Expenses: Current liabilities 74,337 81,909 21,138 20,917 95,475 102,826 General government 45,716 34,851 45,716 34,851 Long-term liabilities 798,370 635,657 165,292 130,550 963,662 766,207 Public safety 114,932 104,919 114,932 104,919 Total Liabilities 872,707 717,566 186,430 151,467 1,059,137 869,033 Public works 48,617 41,558 48,617 41,558 Community development 4,589 3,290 4,589 3,290 Deferred Inflows of Resources: Cultural & recreation 14,281 10,997 14,281 10,997 Housing & redevelopment 3,442 7,449 3,442 7,449 Deferred inflows related to pensions 4,077 7,451 236 384 4,313 7,835 Interest and fiscal charges 16,128 16,388 16,128 16,388 Deferred inflows related OPEB 2,152 114 2,266 - Richmond Housing Authority 30,979 26,242 30,979 26,242 Total Deferred Inflows of Resources 6,229 7,451 350 384 6,579 7,835 Port of Richmond 10,258 10,102 10,258 10,102 Richmond Marina 327 231 327 231 Net Position: Municipal Sewer 21,696 17,721 21,696 17,721 Net investment in capital assets 221,336 233,619 68,213 71,000 289,549 304,619 Storm Sewer 1,662 2,321 1,662 2,321 Cable TV 1,697 1,028 1,697 1,028 Restricted 87,380 76,810 9,514 9,441 96,894 86,251 Total expenses 247,705 219,452 66,619 57,645 314,324 277,097 Unrestricted (625,067) (504,602) (27,908) (24,096) (652,975) (528,698) Excess (Deficiency) of Revenues Total Net Position (Deficit) $ (316,351) $ (194,173) $ 49,819 $ 56,345 $ (266,532) $ (137,828) Over (Under) Expenses (6,066) 16,106 2,722 7,401 (3,344) 23,507 Transfers 87 (87) (87) *Not restated for the implementation of GASB 75. Special items 1,208 1,208 Changes in Net Position (4,771) 16,106 2,635 7,314 (2,136) 23,507 Net position (deficit) at beginning of year (July 1, 2017 restated) (311,580) (210,366) 47,184 49,031 (264,396) (161,335)

Net position (deficit) at end of year $ (316,351) $ (194,173) $ 49,819 56,345$ $ (266,532) $ (137,828)

* Not restated for the implementation of GASB 75.

8 9 Governmental Activities Total governmental activities expenses of $247.7 million were offset by $67.7 million in program revenues in fiscal year 2018. These expenses do not include capital outlays, which are reflected in the Governmental activities decreased the City’s net position by $4.7 after the restatement for the City’s capital assets. Program revenues are derived directly from the program itself or from parties implementation of GASB 75. Total expenses of $247.7 million exceeded revenue of $242.6 million by outside the reporting government’s taxpayers or citizenry. They reduce the net cost of the function to be $5.1 million. Revenues increased $7 million or 3% primarily due to increases in property taxes financed from the government’s general revenues. During the fiscal year, the net costs funded by the associated with an increase in assessed valuations, utility users taxes, documentary transfer taxes, sales City’s general revenues were $179.9 million. taxes, business license fees and various grants. Expenses increased $28 million or 13% from prior year primarily due to decreases in public safety, public works, community development and long-term debt As reflected in the pie chart below, 55% of the governmental program revenues came from Charges for expenses that outweighed the increases in general government and housing and redevelopment expenses. Services, which includes licenses and permits and fees, fines, forfeitures and penalties, and several other revenues. The remaining 45% percent of governmental program revenues come from Operating Grants The decrease in the net position is primarily due to reporting of net unfunded liability of the City’s and Capital Grants Contributions which include restricted revenues such as Gas Tax, Transportation and pension and Other Postemployment Benefits (OPEB) plans in the basic financial statements. Sales Tax, and Federal/State Grants.

Program Revenues by Source Business Type Activities Governmental Activities Business-type activities increased the City’s net position by $2.6 million. Key factors contributing to the decrease in business-type activities are as follows:

 The Municipal Sewer fund reported operating income of approximately $8.1 million, there were $3.9 Operating Grants & Charges for Contributions million of non-operating expenses the majority of which represented interest and swap expenses ServicesServices 30% incurred on various Wastewater Debt issues, offset by $798 thousand in federal subsidies received to 55% reduce interest costs associated with Richmond Wastewater Revenue Bonds, Series 2010B, resulting Capital Grants & in a $4.8 million change in net position. Contributions 15%  The Richmond Housing Authority’s (“RHA”) net position decreased by $2.8 million. RHA’s operating loss of $29.2 million increased $6.1 million, or 26.2% from prior year due to an approximate $5.5 million increase in Housing Assistance and restated beginning balance.

 Other Enterprise funds had a combined $526 thousand increase in net position. The majority of the General revenues are all other revenues not categorized as program revenues and include property taxes, increase, $304 thousand, is attributed to the decrease in in salaries and benefits under the Port of sales taxes, utility users’ tax, documentary transfer taxes, investment earnings, grants and contributions Richmond. not related to specific programs and other miscellaneous general revenues. Total general revenues from

Net Program (Expenses) Revenues governmental activities were $174.0 million in fiscal year 2018. The three largest components of general revenues received were Property Taxes-current collections of $59.4 million, Utility User Taxes Comparisons of the cost of services by function for the City’s government-wide activities are shown in of $46 million and Sales Taxes of $44.4 million. The following graph shows the City’s general revenues the preceding tables, along with the revenues used to cover the net expenses. by source.

The following table details the net program costs for each of the governmental activities functions:

Expenses and Program Revenues Governmental Activities

Net (Expenses) Expenses Revenues Revenues Functions General government$ 45,715,329 $ 17,740,519 $ (27,974,810) Public safety 114,932,219 10,015,021 (104,917,198) Public works 48,617,290 20,404,606 (28,212,684) Community development 4,589,328 14,219,090 9,629,762 Cultural and recreational 14,280,985 2,381,728 (11,899,257) Housing and redevelopment 3,442,239 2,955,392 (486,847) Interest on long-term debt 16,127,479 - (16,127,479)

Total $ 247,704,869 $ 67,716,356 $ (179,988,513)

10 11 The following table details net program costs for business-type activities: At the end of the fiscal year, the City’s governmental funds reported total fund balances of $90.8 million, an increase of $10.8 million, or 13% from prior year. Financial highlights for the City’s major funds are Expenses and Program Revenues discussed below: Business-type Activities General Fund The General Fund is the primary operating fund of the City. It is used to report the Program Net (Expenses) financial results of the daily operations of the City. The major revenue sources are utility users’ tax, Expenses Revenues Revenues sales tax and property taxes. The major expenditures are salaries and administrative expenses. The Business-type Activities City’s general fund revenues and expenditures grew by $2.2 million or 1% and $5.5 million or 4%, Richmond Housing Authority$ 30,978,813 $ 28,197,546 $ (2,781,267) respectively. The increase in revenues is primarily due to the continuing growth in the City’s assessed Port of Richmond 10,257,553 10,580,246 322,693 valuation of properties within the City as well as increases various taxes. The increase in expenditures is Richmond Marina 327,442 537,438 209,996 primary due to a contribution of $3.2 million to the City’s OPEB Trust, in accordance to the City’s Municipal Sewer 21,696,370 23,244,632 1,548,262 OPEB funding policy. Storm Sewer 1,661,808 2,068,110 406,302 Cable TV 1,697,155 1,281,952 (415,203) At the end of the current fiscal year, the total fund balance increased by $214 thousand from the prior year to $35.6 million. General Fund reported an unassigned fund balance of $17.6 million, a decrease of Total $ 66,619,141 $ 65,909,924 $ (709,217) $2.1 million from prior year, of which $17.5 million represents the amount the City has set aside for contingency. Business-type activities expenses exceeded revenues by $709 thousand, as the Richmond Housing Authority and Cable TV were not able to generate enough user fees sufficient to cover operating costs by Community Development and Loan Programs This fund was established to account for the receipt of $3.2 million. Community Development Block Grant, HOME Investment Partnership Program and Neighborhood Stabilization Program grant monies and the use of the grants. In conjunction with the dissolution of the As reflected in the pie chart below, 59% of the business-type program revenues came from Charges for Redevelopment Agency, this fund also accounts for the low and moderate income housing activities of Services and the remaining 41% were derived from Operating and Capital Grants. the City as Housing Successor to the former Redevelopment Agency’s low and moderate income housing activities. As of June 30, 2018, fund balance is $25 million which represents a $702 thousand Program Revenues by Source increase from prior year. Business-Type Activities Proprietary Funds:

Operating Grants & Contributions The City’s proprietary funds are enterprise and internal service funds. Proprietary funds provide the 40% same type of information found in the government-wide financial statements but in more detail.

Charges for The City’s major enterprise funds are the Richmond Housing Authority, Port of Richmond, and Services 59% Municipal Sewer.

Richmond Housing Authority The Richmond Housing Authority (“RHA”) was established to Capital Grants & administer funds provided by the Department of Housing and Urban Development (HUD) to assist low- Contributions 1% income families in obtaining decent, safe and sanitary housing. RHA’S net position declined $2.8 million to $15.4 million at June 30, 2018. Of the $15.4 million, $17.5 million is invested in capital assets, net of related debt and $2.1 million is unrestricted negative. FINANCIAL ANALYSIS OF THE CITY’S FUNDS The Port of Richmond The Port of Richmond (“Port”) is a public enterprise established by the City and As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- is administered as a department of the City. Operations include the marine terminal facilities and related legal requirements. commercial property rentals. The Port’s net position increased by $375 thousand to $6.5 million. The increase is partially attributed to the reduction of dredging and oil spill maintenance expenses. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, Municipal Sewer Fund This fund is used to account for a variety of sewer service-related revenues and and balances of spendable resources. Such information is useful in assessing the City’s financial expenses. Municipal Sewer’s net position increased $4.8 million to $31.3 million at June 30, 2018. capacity.

12 13 GENERAL FUND BUDGETARY HIGHLIGHTS CAPITAL ASSETS AND DEBT ADMINISTRATION

The adopted budget, excluding transfers, bond premium and proceeds from sale of property, reflected Capital Assets $154.1 million in estimated revenues and $154.7 million in appropriations. The City’s investment in capital assets for its governmental and business-type activities as of June 30, Budget adjustments reflect extensive analysis and updates arising from the Mid-Year Revenue and 2018 amounted to $493.4 million, net of accumulated depreciation. This investment in capital assets Expenditure Review, and Council approved amendments that occurred during the fiscal year. includes land, buildings, improvements, machinery and equipment, infrastructure and construction in progress is illustrated below: The final amended budget included a $1.2 million increase in estimated revenue and a $642 thousand increase in appropriations. Actual revenues of $157.1 million were $1.8 million more than adjusted Capital Assets by Type operating revenue budget, a variance of 1.1%. Key elements of the variances in revenues are discussed as follows: Governmental activities Business-type activities Total

Property Taxes totaled $39.0 million which is $600 thousand more than expected. The increase stems from increases in Residual Redevelopment Property Tax (RRPTF) after Recognized Obligation 2018 2017 2018 2017 2018 2017 Payments Schedule (ROPS) or, in other words, more than expected Successor Agency Residual and Pass-through revenue. Land $ 29,424,667 $ 29,403,573 $ 7,195,986 $ 7,195,986 $ 36,620,653 $ 36,599,559

Utility Users Tax (UUT) totaled $46.0 million which was $548 thousand less than expected. The bulk of Construction in - the decrease was in gas and electricity UUT and prepaid wireless UUT which is collected by the State. Progress 17,034,198 68,938,598 28,401,520 32,139,210 45,435,718 101,077,808 Building and improvements 115,156,850 117,248,923 26,903,695 29,316,426 142,060,545 146,565,349 Sales Taxes totaled $44.5 million which was $1.6 million more than budgeted. This corresponded to increases in the regular Sales Tax and proportional increases in both half cent Sales Tax measures. More Machinery and equipment 8,804,933 9,567,529 3,531,105 4,304,447 12,336,038 13,871,976 directly, we experienced Sales Tax growth for most sectors in the City including the business to business Infrastructure 138,209,556 87,132,729 118,785,856 103,297,903 256,995,412 190,430,632 category and increased collections from internet sales.

Total Capital assets $ 308,630,204 $ 312,291,352 $ 184,818,162 $ 176,253,972 $ 493,448,366 $ 488,545,324 Licenses, Permits and Fees totaled $3.8 million which was $1 million less than budgeted. The bulk of the decrease stemmed from the collection of Business License Tax. The previous year saw a significant increase due to the collective efforts from the Business License Division, Code Enforcement, Rent Control and MuniServices. It led to payments from new customers that included, in many cases, past due The City’s infrastructure assets are recorded at historical cost in the government-wide financial amounts up to three years back. The majority of the new businesses were residential rental properties. statements. The subsequent year, these businesses just paid the yearly flat rate. The budget did not reflect this expected decrease. The most significant additions to capital assets were construction in progress primarily consisting of $16.4 million of Wastewater Treatment plant improvements included in the City’s business-type The final adjusted appropriations were $155.3 million, an increase of $642 thousand from the original activities. adopted budget appropriation of $154.7 million. The adopted budget appropriation was increased mainly due to mid-year adjustments. This included payments to the Department of Toxic Substances Additional information about the City’s capital assets can be found in Note 6 on pages 66 through 68 in Control (DTSC) for various sites; and transfers to non-general funds to cover annual required the financial statements. contributions to pension plans, a rental lease, and critical capital improvement repairs. Debt Administration: An additional $1.6 million was allocated to the compensated absences fund to clear the negative cash position. Actual operating expenditures of $156.8 million were $1.4 million more than final budget Long Term Debt – The City’s total debt outstanding at June 30, 2018 increased $23.2 million from appropriations. The overage was primarily due to the transfer of $3.2 million to the OPEB trust to $397.5 million to $420.7 million. The $23.2 million increase is due to the City issuing $33.5 of comply with the City’s OPEB policy. Wastewater Revenue Bonds, offset by current year retirements.

14 15 The City continues to closely monitor revenue and expenditures through monthly variance reports to Outstanding Debt assure adherence to budget controls. Simultaneously, position control is strictly enforced, ensuring that June 30 any employee hired is moving into a funded position. The City continues to work with Public Financial Management Group (PFM) through the National Resource Network on budget and financial planning. Governmental Activities Business-type Activities Total For the upcoming fiscal year, PFM will be working with the City to align the budget forecast with City 2018 2017 2018 2017 2018 2017 Council priorities, review the City’s organizational structure, and provide recommended actions for Revenue bonds $ 111,698,772 $ 82,313,447 $ 111,698,772 $ 82,313,447 fiscal sustainability. This will include planning and addressing pension and Other Post-Employment Lease revenue bonds $ 111,241,920 $ 113,275,266 33,587,707 36,588,791 144,829,627 149,864,057 Benefits (OPEB) funding. Additionally, the City continues to analyze the structural integrity of all funds Pension obligation bonds 150,445,289 153,058,033 150,445,289 153,058,033 and identify additional cost reductions and efficiencies. Total bonds payable 261,687,209 266,333,299 145,286,479 118,902,238 406,973,688 385,235,537

Loans payable 1,844,775 1,993,820 3,316,308 3,401,553 5,161,083 5,395,373 REQUESTS FOR INFORMATION Capital leases 8,650,840 6,872,843 - 8,650,840 6,872,843 This financial report is designed to provide a general overview of the City’s finances for all of its Total outstanding debt$ 272,182,824 $ 275,199,962 $ 148,602,787 $ 122,303,791 $ 420,785,611 $ 397,503,753 citizens, taxpayers, customers, investors and creditors. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City of Richmond, Finance Department, 450 Civic Center Plaza, Richmond, CA 94804. Alternatively, you may The City does not have any general obligation bonds as of June 30, 2018. send your inquiries via e-mail to [email protected].

The City’s issuer credit rating from S&P was BBB+ as of June 30, 2017. On December 4, 2017, the City received an updated issuer credit rating from S&P upgrading the previous BBB+ issuer credit rating to an A- issuer credit rating.

For more detailed information on the City’s long-term debt see Note 7 on pages 69-93.

Economic Factors, Next Year’s Budget and Inflation Rates

The City’s economic base continues to grow after years of recession. Property values assessed by the County as of January 1, 2018 have increased by 8.13% over the prior year. Additionally, Residual Redevelopment Property Tax (RPTF) after Recognized Obligation Payments Schedule (ROPS) payments have gone from $600 thousand in FY2015-16 to $2.5 million in FY2016-17, and finally to over $4 million in FY20117-18. Sales Tax is expected to increase by 4.3% in FY2018-19 as compared to the previous year. As of June 30, 2017, unemployment in Richmond stands at 4.8%, improved from 5.4% a year ago.

The City of Richmond is in contact with Terminal One Development, LLC to sell an approximately 10- acre site for development purposes at a price of $10 million. The developer has paid the City $500,000 in a non-refundable deposit, with the balance of $9.5 million due following granting of all entitlements and close of escrow. Following City Council certification of the environmental impact report (EIR) for the project in July 2016, a lawsuit was filed that challenged certification of the EIR. A settlement was reached by all parties to this lawsuit in November 2016 which allows the project entitlement process to proceed. Close of escrow on the real estate sale by the City to Terminal One Development, LLC, including the transfer of the $9.5 million balance due from the developer to the City, is anticipated by June 30, 2019.

16 17 CITY OF RICHMOND JUNE 30, 2018

STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES

The purpose of the Statement of Net Position and the Statement of Activities is to summarize the entire City’s financial activities and financial position.

The Statement of Net Position reports the difference between the City’s total assets and deferred outflows of resources and the City’s total liabilities and deferred inflows of resources, including all the City’s capital assets and all its long-term debt. The Statement of Net Position focuses the reader on the composition of the City’s net position, by subtracting total liabilities and deferred inflows of resources from total assets and deferred outflows of resources and summarizes the financial position of all the City’s Governmental Activities in a single column, and the financial position of all the City’s Business- Type Activities in a single column; these columns are followed by a Total column that presents the financial position of the entire City.

The City’s Governmental Activities include the activities of its General Fund, along with all its Special Revenue, Capital Projects and Debt Service Funds. Since the City’s Internal Service Funds primarily service these Funds, their activities are consolidated with Governmental Activities, after eliminating interfund transactions and balances. The City’s Business Type Activities include all its Enterprise Fund activities and any portion of the Internal Service Fund balances that service Enterprise Funds. Fiduciary activity is excluded.

The Statement of Activities reports increases and decreases in the City’s net position. It is also prepared on the full accrual basis, which means it includes all the City’s revenues and all its expenses, regardless of when cash changes hands. This differs from the “modified accrual” basis used in the Fund financial This Page Left Intentionally Blank statements, which reflect only current assets, current liabilities, deferred outflows/inflows of resources, available revenues and measurable expenditures.

Both these Statements include the financial activities of the City, Richmond Joint Powers Finance Authority, City of Richmond Housing Authority, Richmond Neighborhood Stabilization Corporation and Richmond Surplus Property Authority, which are legally separate but are component units of the City because they are controlled by the City, which is financially accountable for the activities of these entities. The balances and the activities of the discretely presented component units of the RHA Properties, RHA Housing Corporation and RHA RAD LLC are included in these Statements as separate columns.

19 CITY OF RICHMOND STATEMENT OF NET POSITION JUNE 30, 2018

Primary Government Component Units RHA Governmental Business-Type RHA Housing RHA Activities Activities Total Properties Corporation RAD LLC ASSETS Cash and investments (Note 3) $64,436,288 $24,295,934 $88,732,222 $1,239 Restricted cash and investments (Note 3) 14,202,232 28,070,292 42,272,524 Receivables: Accounts, net 13,395,605 6,640,784 20,036,389 Interest 177,303 47,010 224,313 Grants 6,563,543 686,284 7,249,827 Due from developer (Note 16E) 11,221,743 11,221,743 Loans (Notes 5 and 16J) 46,762,555 46,762,555 $14,510,000 Internal balances (Note 4D) 26,206,756 (26,206,756) Property held for resale (Note 2I) 78,016 78,016 Prepaids, supplies, and other assets (Note 2C) 622,329 18,609 640,938 Capital assets (Note 6): Nondepreciable 46,458,865 35,597,506 82,056,371 Depreciable, net 262,171,339 149,220,656 411,391,995 Total Assets 481,074,831 229,592,062 710,666,893 1,239 14,510,000 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions (Notes 10 and 11) 74,812,578 2,725,036 77,537,614 Deferred outflows related to OPEB (Note 12) 6,699,027 354,808 7,053,835 Deferred charge on refunding (Note 2H) 3,928,020 3,928,020 Total Deferred Outflows of Resources 81,511,605 7,007,864 88,519,469 LIABILITIES Accounts payable and accrued liabilities 7,460,870 4,009,620 11,470,490 34,138 Interest payable 3,054,646 3,448,737 6,503,383 Refundable deposits 1,140,519 344,775 1,485,294 Unearned revenue (Note 8) 8,468,834 640,029 9,108,863 Derivative instrument at fair value - liability (Note 7) 22,939,800 6,744,600 29,684,400 Compensated absences (Note 2D): Due within one year 7,409,289 156,307 7,565,596 Due in more than one year 5,987,720 316,759 6,304,479 Claims liabilities (Note 14): Due within one year 11,120,445 11,120,445 Due in more than one year 26,587,129 26,587,129 Long-term debt (Note 7): Due within one year 12,742,999 5,794,081 18,537,080 Due in more than one year 259,439,825 142,808,706 402,248,531 Net pension liability (Notes 10 and 11): Due in more than one year 328,055,449 12,723,222 340,778,671 Net OPEB liability (Note 12): Due in more than one year 178,300,179 9,443,508 187,743,687 Total Liabilities 872,707,704 186,430,344 1,059,138,048 34,138 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions (Notes 10 and 11) 4,077,558 236,375 4,313,933 Deferred inflows related to OPEB (Note 12) 2,151,737 113,966 2,265,703 Total Deferred Inflows of Resources 6,229,295 350,341 6,579,636 NET POSITION (Note 9) Net investment in capital assets 221,336,363 68,213,687 289,550,050 Restricted for: Capital projects 16,313,017 16,313,017 Debt service 9,844,344 9,514,522 19,358,866 Housing and redevelopment 46,880,701 46,880,701 Community development projects 14,342,301 14,342,301 Total Restricted Net Position 87,380,363 9,514,522 96,894,885 Unrestricted (Deficit) (625,067,289) (27,908,968) (652,976,257) (32,899) 14,510,000 Total Net Position (Deficit) ($316,350,563) $49,819,241 ($266,531,322) ($32,899) $14,510,000

See accompanying notes to financial statements 20 21 CITY OF RICHMOND STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018

Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government Component Units Operating Capital RHA Charges for Grants and Grants and Governmental Business-type Housing RHA Functions/Programs Expenses Services Contributions Contributions Activities Activities Total RHA Properties Corporation RAD LLC Primary Government: Governmental Activities: General government $45,715,329 $16,838,782 $704,145 $197,592 ($27,974,810) ($27,974,810) Public safety 114,932,219 8,147,458 1,721,872 145,691 (104,917,198) (104,917,198) Public works 48,617,290 6,529,172 4,217,994 9,657,440 (28,212,684) (28,212,684) Community development 4,589,328 1,748,222 12,470,868 9,629,762 9,629,762 Cultural and recreational 14,280,985 1,545,399 836,329 (11,899,257) (11,899,257) Housing and redevelopment 3,442,239 1,878,958 605,781 470,653 (486,847) (486,847) Interest on long-term debt 16,127,479 (16,127,479) (16,127,479)

Total Governmental Activities 247,704,869 36,687,991 20,556,989 10,471,376 (179,988,513) (179,988,513)

Business-type Activities: Richmond Housing Authority 30,978,813 1,740,399 26,098,804 358,343 ($2,781,267) (2,781,267) Port of Richmond 10,257,553 10,580,246 322,693 322,693 Richmond Marina 327,442 537,438 209,996 209,996 Municipal Sewer 21,696,370 22,447,439 797,193 1,548,262 1,548,262 Storm Sewer 1,661,808 2,068,110 406,302 406,302 Cable TV 1,697,155 1,281,952 (415,203) (415,203)

Total Business-type Activities 66,619,141 38,655,584 26,098,804 1,155,536 (709,217) (709,217)

Total Primary Government $314,324,010 $75,343,575 $46,655,793 $11,626,912 (179,988,513) (709,217) (180,697,730)

Component Units: RHA Properties RHA Housing Corporation RHA RAD LLC

General revenues: Taxes: Property taxes-current collections 59,441,796 59,441,796 Sales taxes 44,474,973 44,474,973 Utility user taxes 46,079,755 46,079,755 Documentary transfer taxes 6,486,347 6,486,347 Other taxes 6,144,968 6,144,968 Unrestricted intergovernmental 58,842 58,842 Use of money and property 7,000,785 3,431,293 10,432,078 Gain from sale of capital assets 39,226 39,226 Other 4,195,794 4,195,794 Transfers, net (Note 4) 86,778 (86,778) Special Item (Note 5): Transfer of loans to housing successor 1,208,259 1,208,259

Total general revenues, transfers and special item 175,217,523 3,344,515 178,562,038

Change in Net Position (4,770,990) 2,635,298 (2,135,692)

Net Position (Deficit)-Beginning, As Restated (Note 9E) (311,579,573) 47,183,943 (264,395,630) ($32,899) $14,510,000

Net Position (Deficit)-Ending ($316,350,563) $49,819,241 ($266,531,322) ($32,899) $14,510,000

See accompanying notes to financial statements

22 23 CITY OF RICHMOND JUNE 30, 2018

FUND FINANCIAL STATEMENTS

Major funds are defined generally as having significant activities or balances in the current year.

The funds described below were determined to be Major Funds by the City in fiscal 2018. Individual non-major funds may be found in the Supplemental section.

MAJOR GOVERNMENTAL FUNDS

GENERAL FUND

The General Fund is used for all the general revenues of the City not specifically levied or collected for other City funds and the related expenditures. The General Fund accounts for all financial resources of a governmental unit which are not accounted for in another fund.

COMMUNITY DEVELOPMENT AND LOAN PROGRAMS FUND

The Community Development and Loan Programs Special Revenue Fund accounts for the receipt of Community Development Block Grant, HOME Investment Partnership Program, and Neighborhood Stabilization Program grant monies and the use of the grants. The Fund also accounts for the low and moderate income housing activities of the City as Housing Successor to the former Redevelopment Agency. Related to the grant disallowed costs discussed in Notes 5 and 16D, the City purchased certain loans that had previously been funded with Community Development Block Grant and HOME funds. The grants and loan programs are to be used to provide, within the City of Richmond, new affordable This Page Left Intentionally Blank housing, improve existing housing conditions, assist homeless and disabled with housing, and to expand economic opportunities in business, and employment for low and moderate income residents.

25 CITY OF RICHMOND CITY OF RICHMOND GOVERNMENTAL FUNDS Reconciliation of the GOVERNMENTAL FUNDS -- BALANCE SHEET BALANCE SHEET with the JUNE 30, 2018 STATEMENT OF NET POSITION JUNE 30, 2018

Community Development Other Total Total fund balances reported on the governmental funds balance sheet $90,860,401 and Loan Governmental Governmental General Programs Funds Funds Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental Funds above because of the following: ASSETS CAPITAL ASSETS Cash and investments (Note 3) $15,413,405 $26,915,335 $42,328,740 Capital assets used in Governmental Activities are not current assets or financial resources and Restricted cash and investments (Note 3) $1,865,324 11,106,177 12,971,501 therefore are not reported in the Governmental Funds. 308,630,204 Receivables: ALLOCATION OF INTERNAL SERVICE FUND NET POSITION Accounts, net 10,233,844 25,331 2,986,445 13,245,620 Internal service funds are not governmental funds. However, they are used by management to Interest 43,082 5,645 51,828 100,555 charge the costs of certain activities, such as insurance and central services and maintenance Grants 25,500 333,941 6,204,102 6,563,543 to individual governmental funds. The net current position of the Internal Service Funds are therefore Loans (Note 5) 1,212,042 44,621,500 779,013 46,612,555 included in Governmental Activities in the following line items in the Statement of Net Position. Property held for resale (Note 2I) 78,016 78,016 Cash and investments 22,107,548 Advances to other funds (Note 4B) 16,133,282 174,067 16,307,349 Restricted cash and investments 1,230,731 Prepaids, supplies and other assets 622,329 622,329 Accounts receivable 149,985 Interest receivable 76,748 Total Assets $43,683,484 $47,103,824 $48,042,900 $138,830,208 Loans receivable 150,000 Due from other funds 14,467,306 Advances to other funds 2,360,403 LIABILITIES Accounts payable, accrued liabilities and interest payable (299,989) Compensated absences (232,076) Accounts payable and accrued liabilities $2,834,949 $837,608 $3,500,889 $7,173,446 Unearned revenue (783,820) Refundable deposits 585,645 554,874 1,140,519 Claims payable (37,707,574) Due to other funds (Note 4A) 340,111 6,588,191 6,928,302 Unearned revenue (Note 8) 4,073,857 3,611,157 7,685,014 ACCRUAL OF NON-CURRENT REVENUES AND EXPENSES Revenues which are unavailable on the Fund Balance Sheets because they are not available currently Total Liabilities 7,494,451 1,177,719 14,255,111 22,927,281 are taken into revenue in the Statement of Activities. 25,042,526 LONG TERM ASSETS AND LIABILITIES DEFERRED INFLOWS OF RESOURCES The assets and liabilities below are not due and payable in the current period and therefore are not reported in the Funds: Unavailable revenue (Note 8) 558,110 20,861,912 3,622,504 25,042,526 Interest payable (3,042,081) Long-term debt (272,182,824) FUND BALANCES (Note 9) Derivative instrument at fair value - liability (22,939,800) Net pension liability and deferred outflows/inflows related to pensions (257,320,429) Nonspendable 17,967,653 17,967,653 Net OPEB liability and deferred outflows/inflows related to OPEB (173,752,889) Restricted 25,064,193 39,061,160 64,125,353 Governmental activities portion of compensated absences (13,164,933) Assigned 72,506 43,906 116,412 Unassigned 17,590,764 (8,939,781) 8,650,983 NET POSITION OF GOVERNMENTAL ACTIVITIES ($316,350,563) See accompanying notes to financial statements Total Fund Balances 35,630,923 25,064,193 30,165,285 90,860,401

Total Liabilities, Deferred Inflows of Resources and Fund Balances $43,683,484 $47,103,824 $48,042,900 $138,830,208

See accompanying notes to financial statements

26 27 CITY OF RICHMOND CITY OF RICHMOND GOVERNMENTAL FUNDS Reconciliation of the STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2018 with the STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018 Community Development Other Total The schedule below reconciles the Net Changes in Fund Balances reported on the Governmental Funds Statement of and Loan Governmental Governmental Revenues, Expenditures and Changes in Fund Balance, which measures only changes in current assets and current General Programs Funds Funds liabilities on the modified accrual basis, with the Change in Net Position of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis. REVENUES Property taxes $38,961,021 $22,002,168 $60,963,189 Sales taxes 44,474,973 44,474,973 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $10,799,268 Utility user taxes 46,079,755 46,079,755 Other taxes 12,413,127 12,413,127 Amounts reported for governmental activities in the Statement of Activities Licenses, permits and fees 3,802,576 $1,697,222 16,053,085 21,552,883 are different because of the following: Fines, forfeitures and penalties 981,984 19,943 1,001,927 Use of money and property 189,599 282,805 274,121 746,525 CAPITAL ASSETS TRANSACTIONS Intergovernmental 1,102,944 341,491 18,693,158 20,137,593 Governmental Funds include capital outlays in departmental expenditures. However, Private grants 9,000,000 9,000,000 in the Statement of Activities the cost of those assets is capitalized and allocated over Charges for services 7,823,287 9,221,914 17,045,201 their estimated useful lives and reported as depreciation expense. Pension stabilization revenue The capital outlay expenditures are therefore added back to fund balance 11,546,818 Rent 849,640 3,300 852,940 Depreciation expense is deducted from the fund balance Other 414,525 2,062,661 1,941,593 4,418,779 (Depreciation expense is net of internal service fund depreciation of Total Revenues 157,093,431 4,384,179 77,209,282 238,686,892 $1,156,716 which has already been allocated to serviced funds) (16,563,989) Retirements of capital assets are deducted from the fund balance EXPENDITURES Current: (Retirements are net of internal service fund retirements of General government 28,402,147 15,607,109 44,009,256 $5,372 which has already been allocated to serviced funds) (322,371) Public safety 93,646,193 2,899,842 96,546,035 Capital contributions from developers and the Successor Agency are added to fund balance 135,765 Public works 22,805,801 12,210,694 35,016,495 Community development 3,604,538 4,453,100 8,057,638 LONG TERM DEBT PROCEEDS AND PAYMENTS Cultural and recreational 10,734,162 613,274 11,347,436 Bond proceeds provide current financial resources to governmental funds, but Housing and redevelopment 764,390 1,178,247 1,942,637 issuing debt increases long-term liabilities in the Statement of Net Position. Capital outlay 127,246 265,715 9,607,634 10,000,595 Repayment of bond principal is an expenditure in the governmental funds, but Debt service: in the Statement of Net Position the repayment reduces long-term liabilities. Principal 814,494 10,218,439 11,032,933 Interest and fiscal charges 256,830 10,528,512 10,785,342 Repayment of debt principal is added back to fund balance 11,032,933 Total Expenditures 156,786,873 4,634,643 67,316,851 228,738,367 Capital appreciation bonds accretion is deducted from fund balance (5,560,256) Amortization of bond premium is added back to fund balance 63,346 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 306,558 (250,464) 9,892,431 9,948,525 ACCRUAL OF NON-CURRENT ITEMS OTHER FINANCING SOURCES (USES) The amounts below included in the Statement of Activities do not provide or (require) the use of Proceeds from sale of property 39,226 39,226 current financial resources and therefore are not reported as revenue or expenditures in Transfers in (Note 4C) 6,035,115 8,437,049 14,472,164 governmental funds (net change): Transfers (out) (Note 4C) (6,166,866) (255,762) (8,446,278) (14,868,906) Interest payable 171,060 Total Other Financing Sources (Uses) (92,525) (255,762) (9,229) (357,516) Unavailable revenue 3,618,590 Derivative instrument at fair value - liability 5,999,900 NET CHANGE IN FUND BALANCES Compensated absences (755,150) BEFORE SPECIAL ITEM 214,033 (506,226) 9,883,202 9,591,009 Net pension liability and deferred outflows/inflows related to pensions (28,196,716) Net OPEB liability and deferred outflows/inflows related to OPEB (769,888) SPECIAL ITEM (Note 5): Transfer of loans to housing successor 1,208,259 1,208,259 ALLOCATION OF INTERNAL SERVICE FUND ACTIVITY Total Special Item 1,208,259 1,208,259 Internal Service Funds are used by management to charge the costs of certain activities, NET CHANGE IN FUND BALANCES 214,033 702,033 9,883,202 10,799,268 such as equipment acquisition, maintenance, and insurance to individual funds. The portion of the net revenue (expense) of these Internal Service Funds arising out BEGINNING FUND BALANCES 35,416,890 24,362,160 20,282,083 80,061,133 of their transactions with governmental funds is reported with governmental activities, ENDING FUND BALANCES $35,630,923 $25,064,193 $30,165,285 $90,860,401 because they service those activities. Change in Net Position - All Internal Service Funds 4,029,700 See accompanying notes to financial statements CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES ($4,770,990)

See accompanying notes to financial statements 28 29 CITY OF RICHMOND JUNE 30, 2018

MAJOR PROPRIETARY FUNDS

Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges.

The concept of major funds extends to Proprietary Funds. The City has identified the funds below as major proprietary funds in fiscal 2018.

Generally accepted accounting principles do not provide for the disclosure of budget vs. actual comparisons regarding proprietary funds that are major funds.

RICHMOND HOUSING AUTHORITY

This fund accounts for all funds provided by the Department of Housing and Urban Development (HUD) to assist low income families in obtaining decent, safe and sanitary housing.

PORT OF RICHMOND

This fund accounts for all financial transactions relating to the City-owned marine terminal facilities and commercial property rentals.

MUNICIPAL SEWER This Page Left Intentionally Blank This fund accounts for all financial transactions relating to the City’s Wastewater Collection and Treatment. Services are on a user charge basis to residents and business owners located in Richmond.

31 CITY OF RICHMOND CITY OF RICHMOND PROPRIETARY FUNDS PROPRIETARY FUNDS STATEMENT OF NET POSITION STATEMENT OF REVENUES, EXPENSES JUNE 30, 2018 AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2018 Business-type Activities-Enterprise Funds Governmental Richmond Other Activities- Housing Port of Municipal Enterprise Internal Service Business-type Activities-Enterprise Funds Governmental Authority Richmond Sewer Funds Totals Funds Richmond Other Activities- ASSETS Housing Port of Municipal Enterprise Internal Service Current assets: Authority Richmond Sewer Funds Totals Funds Cash and investments (Note 3) $3,174,894 $17,388,492 $3,732,548 $24,295,934 $22,107,548 OPERATING REVENUES Restricted cash and Rental $678,559 $678,559 investments (Note 3) 102,576 $9,514,522 18,369,421 83,773 28,070,292 1,230,731 Service charges 733,085 $2,852,569 $22,447,439 $3,345,780 29,378,873 $27,596,887 Receivables: Lease income 7,691,234 541,720 8,232,954 Accounts, net 301,641 5,414,796 495,918 428,429 6,640,784 149,985 Other 328,755 36,443 365,198 Interest 38,921 8,089 47,010 76,748 Grants 686,284 686,284 Total Operating Revenues 1,740,399 10,580,246 22,447,439 3,887,500 38,655,584 27,596,887 Notes (Note 5) 150,000 Prepaids 18,609 18,609 OPERATING EXPENSES Due from other funds (Note 4A) 14,467,306 Salaries and benefits 1,117,620 591,094 1,578,452 1,554,764 4,841,930 7,502,965 Total current assets 4,284,004 14,929,318 36,292,752 4,252,839 59,758,913 38,182,318 General and administrative 2,499,118 1,994,000 10,225,609 1,704,064 16,422,791 2,349,817 Noncurrent assets: Maintenance 1,768,899 1,559,527 52,197 99,419 3,480,042 2,935,254 Receivables: Depreciation 1,637,570 3,775,336 2,301,596 136,519 7,851,021 1,156,716 Due from developer 11,221,743 11,221,743 Housing assistance 23,955,606 23,955,606 Capital assets (Note 6): Claims losses 12,509,419 Nondepreciable 2,361,628 4,937,160 28,274,241 24,477 35,597,506 1,451,985 Other 8,347 212,347 94 220,788 11,029 Depreciable, net 15,776,327 42,175,948 88,790,972 2,477,409 149,220,656 4,539,349 Advances to other funds (Note 4B) 901,396 167,451 1,068,847 2,360,403 Total Operating Expenses 30,978,813 7,928,304 14,370,201 3,494,860 56,772,178 26,465,200 Total noncurrent assets 29,359,698 47,113,108 117,966,609 2,669,337 197,108,752 8,351,737 Operating Income (Loss) (29,238,414) 2,651,942 8,077,238 392,640 (18,116,594) 1,131,687 Total Assets 33,643,702 62,042,426 154,259,361 6,922,176 256,867,665 46,534,055 NONOPERATING REVENUES (EXPENSES) DEFERRED OUTFLOWS OF RESOURCES Loss on retirement of capital assets (5,372) Deferred outflows related to pensions (Note 10) 993,187 422,955 693,821 615,073 2,725,036 774,178 Interest income 91 52,987 3,341,707 36,508 3,431,293 401,231 Deferred outflows related to OPEB (Note 12) 177,757 40,207 70,538 66,306 354,808 77,592 Grants 26,098,804 26,098,804 2,034,921 Deferred charge on refunding (Note 2H) 3,928,020 3,928,020 Interest (expense) (2,329,249) (7,326,169) (191,545) (9,846,963) (16,287)

Total Deferred outflows of resources 1,170,944 463,162 4,692,379 681,379 7,007,864 851,770 Total Nonoperating Revenues (Expenses) 26,098,895 (2,276,262) (3,984,462) (155,037) 19,683,134 2,414,493 LIABILITIES Income (Loss) Before Contributions and Transfers (3,139,519) 375,680 4,092,776 237,603 1,566,540 3,546,180 Current liabilities: Accounts payable and accrued liabilities 1,814,244 355,125 1,663,065 177,186 4,009,620 287,424 Capital contributions/grants 358,343 797,193 1,155,536 Interest payable 1,128,825 2,211,989 107,923 3,448,737 12,565 Transfers in (Note 4C) 483,520 Due to other funds (Note 4A) 3,657,170 2,919,904 961,930 7,539,004 Transfers out (Note 4C) (86,778) (86,778) Refundable deposits 96,752 163,050 84,973 344,775 Compensated absences (Note 2D) 10,299 31,512 60,325 54,171 156,307 Total Contributions and Transfers 358,343 797,193 (86,778) 1,068,758 483,520 Claims payable (Note 14) 11,120,445 Current portion of long-term debt (Note 7B) 3,320,000 2,385,000 89,081 5,794,081 224,192 Change in net position (2,781,176) 375,680 4,889,969 150,825 2,635,298 4,029,700 Total current liabilities 5,578,465 7,918,416 6,320,379 1,475,264 21,292,524 11,644,626 Noncurrent liabilities: BEGINNING NET POSITION (DEFICIT), Advances from other funds (Note 4B) 3,458,884 13,917,312 2,360,403 19,736,599 AS RESTATED (NOTE 9E) 18,184,001 6,193,788 26,427,543 (3,621,389) 47,183,943 (4,126,885) Compensated absences (Note 2D) 92,693 204,605 19,461 316,759 232,076 Unearned revenue (Note 8) 70,191 533,558 36,280 640,029 783,820 ENDING NET POSITION (DEFICIT) $15,402,825 $6,569,468 $31,317,512 ($3,470,564) $49,819,241 ($97,185) Claims payable (Note 14) 26,587,129 Derivative instrument at fair value - liability (Note 7B) 6,744,600 6,744,600 Long-term debt, net (Note 7B) 700,000 30,267,707 109,313,772 2,527,227 142,808,706 2,463,453 See accompanying notes to financial statements Net pension liability (Note 10) 4,637,201 1,974,780 3,239,458 2,871,783 12,723,222 3,614,648 Net OPEB liability (Note 12) 4,731,141 1,070,139 1,877,437 1,764,791 9,443,508 2,065,181 Total noncurrent liabilities 13,690,110 47,968,101 121,231,008 9,524,204 192,413,423 35,746,307

Total Liabilities 19,268,575 55,886,517 127,551,387 10,999,468 213,705,947 47,390,933

DEFERRED INFLOWS OF RESOURCES

Deferred inflows related to pensions (Note 10) 86,150 36,688 60,184 53,353 236,375 67,154 Deferred inflows related to OPEB (Note 12) 57,096 12,915 22,657 21,298 113,966 24,923 Total Deferred inflows of resources 143,246 49,603 82,841 74,651 350,341 92,077

NET POSITION (Note 9)

Net investment in capital assets 17,540,531 23,039,923 27,663,882 (30,649) 68,213,687 4,534,420 Restricted for debt service 9,514,522 9,514,522 Unrestricted (2,137,706) (25,984,977) 3,653,630 (3,439,915) (27,908,968) (4,631,605)

Total Net Position $15,402,825 $6,569,468 $31,317,512 ($3,470,564) $49,819,241 ($97,185)

See accompanying notes to financial statements

32 33 CITY OF RICHMOND CITY OF RICHMOND PROPRIETARY FUNDS JUNE 30, 2018 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2018 FIDUCIARY FUNDS Business-type Activities-Enterprise Funds Governmental Richmond Other Activities- Housing Port of Municipal Enterprise Internal Service Fiduciary funds are presented separately from the Government-wide and Fund financial statements. Authority Richmond Sewer Funds Totals Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $2,031,370 $9,565,687 $22,012,840 $3,870,650 $37,480,547 $27,307,555 Trust funds are used to account for assets held by the City as a trustee agent for individuals, private Payments to suppliers (26,578,727) (3,519,374) (10,660,551) (1,917,989) (42,676,641) (5,365,121) organizations, or other governments. Payments to employees (1,917,018) (877,554) (1,371,444) (1,181,602) (5,347,618) (7,616,360) Insurance premiums and claims paid (11,330,259) Agency funds are used to account for assets held by the City as an agent for individuals, private Cash Flows from Operating Activities (26,464,375) 5,168,759 9,980,845 771,059 (10,543,712) 2,995,815 organizations, and other governments. CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Interfund receipts 2,569,709 276,738 2,846,447 3,343,754 The financial activities of Trust and Agency funds are excluded from the City-wide financial statements, Interfund payments (380,672) (380,672) but are presented in separate Fiduciary Fund financial statements. Receipts from other governments 26,203,110 26,203,110 Transfers out (86,778) (86,778) Transfers in 483,520

Cash Flows from Noncapital Financing Activities 28,772,819 276,738 (467,450) 28,582,107 3,827,274

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Receipts from other governments 797,193 797,193 Grant receipts 358,343 33,558 391,901 2,034,921 Acquisition of capital assets 2 (16,390,736) (24,477) (16,415,211) (2,704,717) Issuance of long-term debt 33,530,000 33,530,000 2,687,645 Premium on bonds 5,905,634 5,905,634 Cost of issuance (579,579) (579,579) Payment to bond escrow agent (7,120,000) (7,120,000) Principal payments on capital debt (3,065,000) (2,400,000) (85,245) (5,550,245) (168,760) Interest paid (2,393,977) (5,599,008) (195,061) (8,188,046) (3,805)

Cash Flows from Capital and Related Financing Activities 358,343 (5,425,417) 8,143,504 (304,783) 2,771,647 1,845,284

CASH FLOWS FROM INVESTING ACTIVITIES Interest 91 52,987 1,283,994 32,498 1,369,570 359,885

Cash Flows from Investing Activities 91 52,987 1,283,994 32,498 1,369,570 359,885

Net Cash Flows 2,666,878 73,067 19,408,343 31,324 22,179,612 9,028,258

Cash and investments at beginning of period 610,592 9,441,455 16,349,570 3,784,997 30,186,614 14,310,021

Cash and investments at end of period $3,277,470 $9,514,522 $35,757,913 $3,816,321 $52,366,226 $23,338,279

Reconciliation of Operating Income (Loss) to Cash Flows from Operating Activities: Operating income (loss) ($29,238,414) $2,651,942 $8,077,238 $392,640 ($18,116,594) $1,131,687 Adjustments to reconcile operating income to cash flows from operating activities: Depreciation 1,637,570 3,775,336 2,301,596 136,519 7,851,021 1,156,716 Change in assets and liabilities: Receivables, net 226,604 (1,059,059) (434,599) (16,850) (1,283,904) 309,849 Prepaids and other assets 61 608 669 5,300 Accounts payable and accrued liabilities and other accrued expenses 1,644,835 42,500 (170,398) (115,020) 1,401,917 (74,321) Refundable deposits (5,824) 44,500 38,676 Unearned revenue 70,191 70,191 (599,181) Compensated absences payable (19,241) 11,164 24,223 (658) 15,488 4,676 Claims payable 1,179,160 Net pension liability and deferred outflows/inflows of resources (800,825) (302,299) 174,583 366,110 (562,431) (127,094) Net pension OPEB and deferred outflows/inflows of resources 20,668 4,675 8,202 7,710 41,255 9,023

Cash Flows from Operating Activities ($26,464,375) $5,168,759 $9,980,845 $771,059 ($10,543,712) $2,995,815

Non-cash transactions: Change in fair value of investment derivative $2,036,200 $2,036,200 Amortization of deferred charge on refunding (1,166,116) (1,166,116) Retirement of capital assets ($5,372)

See accompanying notes to financial statements

34 35 CITY OF RICHMOND CITY OF RICHMOND FIDUCIARY FUNDS FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION STATEMENT OF CHANGES IN FIDUCIARY NET POSITION JUNE 30, 2018 FOR THE YEAR ENDED JUNE 30, 2018

Pension and OPEB Pension Trust Private-Purpose Agency and OPEB Funds Trust Funds Funds Trust Private-Purpose Funds Trust Funds ASSETS ADDITIONS Cash and investments (Note 3) $15,051,204 $6,871,739 Restricted cash and investments (Note 3) 24,966,566 1,212,099 Property taxes $12,255,069 Investment in reassessment bonds (Note 3) 9,335,607 Contributions from the City $15,786,320 Pension and OPEB plan cash and investments (Notes 11C and 12B): Contributions from employees 765,475 City of Richmond Investment Pool $1,526,074 Net investment income: 632,089 Local Agency Investment Fund 176,245 Net increase (decrease) in the fair value of investments 400,813 Mutual fund investments 28,355,159 Interest income 258,861 1,157,803 Accounts receivable 177,409 431,012 Investment management fees (65,812) Interest receivable 2,474 11,810 Intergovernmental revenue 4,898,936 Grants receivable 2,177,084 Proceeds from sale of property 1,614,529 Loans receivable (Note 17B) 1,574,000 Prepaids and other assets 6,366,928 Miscellaneous revenue 398,321 Capital assets (Note 17C): Nondepreciable 4,313,167 Total Additions 17,777,746 20,324,658

Total Assets 30,059,952 54,626,358 $17,862,267 DEDUCTIONS Community development 4,835,285 Pension and OPEB benefits 10,137,299 LIABILITIES Payments in accordance with trust agreements 444,739 Accounts payable and accrued liabilities 916,416 $1,631,405 Interest and fiscal charges 4,993,687 Refundable deposits payable 1,296,921 Other 49,169 Interest payable 1,203,574 Derivative instrument at fair value - liability (Note 17D) 4,033,000 Total Deductions 10,186,468 10,273,711 Long-term debt (Note 17D): Due within one year 8,227,087 Change in net position 7,591,278 10,050,947 Due in more than one year 86,377,962 Due to assessment district bondholders 14,933,941 NET POSITION (DEFICIT), BEGINNING OF YEAR 22,468,674 (56,182,628)

Total Liabilities 100,758,039 $17,862,267 NET POSITION (DEFICIT), END OF YEAR $30,059,952 ($46,131,681)

NET POSITION See accompanying notes to financial statements Restricted for employees' pension and OPEB benefits $30,059,952 Held in trust for other governments ($46,131,681)

See accompanying notes to financial statements

36 37 CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018

NOTE 1 – ORGANIZATION AND DEFINITION OF REPORTING ENTITY

The City was incorporated in 1905 under the laws of the State of California and adopted its charter in 1909. The City operates under a Council-Manager form of government and provides the following services to its citizens as authorized by its charter: police and fire protection, planning and community development, streets and roads, parks and recreation, sewage treatment, drainage and capital projects. In addition, the City has a port, marina, municipal and storm sewer enterprises, a housing authority, a joint powers financing authority, and a parking authority which is inactive.

The accompanying basic financial statements present the financial activity of the City, which is the primary government presented, along with the financial activities of its component units, which are entities for which the City is financially accountable. Although they are separate legal entities, blended component units are in substance part of the City’s operations and are reported as an integral part of the City’s financial statements. The discretely presented component unit, on the other hand, is reported in a separate column in the basic financial statements to emphasize it is legally separate from the government.

A. PRIMARY GOVERNMENT

The financial statements of the primary government of the City include the activities of the City as well as the Richmond Housing Authority, the Richmond Joint Powers Financing Authority, the Richmond Neighborhood Stabilization Corporation, the Richmond Parking Authority and the Richmond Surplus Property Authority all of which are controlled by and dependent on the City. While these are separate legal This Page Left Intentionally Blank entities, their financial activities are integral to those of the City. Their financial activities have been aggregated and merged (termed “blended”) with those of the primary government of the City in the accompanying financial statements.

Blended Component Units:

Richmond Housing Authority (Housing Authority) - Formed in 1941 as a separate legal entity under the provisions of the Housing Act of 1937, the Housing Authority was established to use funds provided by the Department of Housing and Urban Development (HUD) to rehabilitate local deteriorated housing and to subsidize low-income families in obtaining decent, safe, and sanitary housing needs.

Although the Housing Authority is a separate legal entity, it is an integral part of the City. The City exercises significant financial and management control over the Housing Authority and members of City Council serve as the governing board of the Housing Authority. The financial statements of the Housing Authority are included in the City’s basic financial statements as an enterprise fund. Separate financial statements for the Housing Authority may be obtained by contacting the Richmond Housing Authority, 330 24th Street, Richmond, California 94804.

Richmond Joint Powers Financing Authority (JPFA) - A joint exercise of powers authority formed on December 1, 1989, by and between the City and the former Redevelopment Agency, the JPFA was created to assist the City, the Redevelopment Agency, and other local public agencies in financing and refinancing capital improvements and working capital pursuant to the Marks-Roos Local Bond Pooling Act of 1985. The JPFA is authorized to purchase obligations of the City, Redevelopment Agency, and other local public agencies.

39 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 1 – ORGANIZATION AND DEFINITION OF REPORTING ENTITY (Continued) NOTE 1 – ORGANIZATION AND DEFINITION OF REPORTING ENTITY (Continued)

Although the JPFA is a separate legal entity, it is an integral part of the City. The City exercises B. DISCRETELY PRESENTED COMPONENT UNITS significant financial and management control over the JPFA and the members of the City Council serve as the Board of Directors. The operations of the JPFA are included in the City’s basic financial RHA Properties – A joint powers agreement between the City and the Housing Authority formed in 2004 statements as a debt service fund. Separate financial statements for the JPFA may be obtained by for the purpose of owning and managing the operations of an affordable housing residential complex known contacting the Office of Finance, City of Richmond, 450 Civic Center Plaza, Richmond, California as The Hilltop at Westridge Apartments in the City, dedicated to the needs of elderly persons. The City and 94804. the Housing Authority funded the acquisition of this complex through the issuance of debt. The City and Housing Authority exercise significant financial and management control over RHA Properties and Richmond Neighborhood Stabilization Corporation (RNSC) – A California nonprofit public benefit appoint members of the Board of Directors, however RHA Properties manages its own programs separate Corporation formed in July 2009 by the City and the former Redevelopment Agency under the laws of from the City or the Housing Authority. Therefore, the financial activities of RHA Properties are discretely the State of California. The Corporation was organized for the purpose of administering and operating presented in the RHA Properties Component Unit column of the Statement of Net Position and the the City’s Neighborhood Stabilization Program (NSP), which includes purchasing, developing, financing, Statement of Activities. rehabilitating, land banking and/or demolishing blighted properties and foreclosed or abandoned properties utilizing the NSP funds or other public and private funding sources, and assisting the City and RHA Housing Corporation– RHA Housing Corporation was incorporated and registered on January 26, the Agency in providing affordable home ownership opportunities for households of low and moderate 2004 as a California nonprofit public benefit corporation to benefit and support the RHA with respect to income by facilitating the financing necessary for the sale and resale of deed-restricted affordable the Easter Hill development. RHA Housing Corporation entered into RAD Conversion redevelopment ownership units to low and moderate income households at affordable costs, and other similar functions. activities and it acts as the sole and managing member of RHA RAD LLC. The Corporation's fiscal year ends on December 31, 2018. The City and Housing Authority exercise significant financial and The Corporation is governed by a board of directors consisting of the City Manager, the Finance management control over RHA Housing Corporation and appoint members of the Board of Directors, Director, and five other City and Housing Authority Directors. Although the RNSC is a separate legal however RHA Housing Corporation manages its own programs separate from the City or the Housing entity, it is an integral part of the City. The City exercises significant financial and management control Authority. Therefore, the financial activities of RHA Housing Corporation are discretely presented in the over the RNSC and members of the Board of Directors are appointed by City Council and City RHA Housing Corporation Component Unit column of the Statement of Net Position and the Statement of management has operational responsibility for the RNSC. The operations of the RNSC are included in Activities. Separate financial statements for RHA Housing Corporation may be obtained by contacting the City’s basic financial statements as a special revenue fund. Separate financial statements for the the Richmond Housing Authority, 330 24th Street, Richmond, California 94804. RNSC may be obtained by contacting the Office of Finance, City of Richmond, 450 Civic Center Plaza, Richmond, California 94804. RHA RAD LLC - A California limited liability company was formed on July 11, 2013 by RHA Housing Corporation, the sole and managing member. The Company is operated exclusively to further the tax Richmond Surplus Property Authority – Formed to become the owner of certain property declared exempt charitable purposes of the sole and managing member to provide affordable housing for low- surplus by the U.S. Government, the Authority is a separate legal entity but it is an integral part of the income persons where no adequate housing exists for such persons, and to own and operate housing for City. The City exercises significant financial and management control over the Authority and members the benefit of low-income persons who are in need of affordable, decent, safe and sanitary housing and of the City Council serve as the governing board of the Authority. The Authority was reactivated in fiscal related services, where an inadequate supply of housing exists for such persons. The City and Housing year 2011 to facilitate certain Port of Richmond transactions. The financial activities of the Authority are Authority exercise significant financial and management control over RHA RAD LLC and RHA Housing included in the Port of Richmond Enterprise Fund. Separate financial statements are not issued for the Corporation is the sole member of RHA RAD LLC, however RHA RAD LLC manages its own programs Authority. separate from the City or the Housing Authority. Therefore, the financial activities of RHA RAD LLC are discretely presented in the RHA RAD LLC Component Unit column of the Statement of Net Position and Richmond Parking Authority (Parking Authority) - Formed in 1975 pursuant to the provisions of the Statement of Activities. Separate financial statements for RHA RAD LLC may be obtained by California statutes for the purpose of financing the construction of off-street parking facilities. Although contacting the Richmond Housing Authority, 330 24th Street, Richmond, California 94804. the Parking Authority is a separate legal entity, it is an integral part of the City. The City exercises significant financial and management control over the Parking Authority and members of the City In order for the Authority to proceed in its participation into the RAD Program as discussed in Note 16J, Council serve as the governing board of the Parking Authority. The Parking Authority is inactive. RHA RAD LLC shall act as the managing general partner of RHA RAD Housing Partnership LP.

40 41 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The basic financial statements of the City of Richmond have been prepared in conformity with generally Governmental Fund Financial Statements - Governmental Fund Financial Statements include a accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major Accounting Standards Boards (GASB) is the accepted standard setting body for establishing governmental funds and in the aggregate for all non-major funds. An accompanying schedule is governmental accounting and financial reporting principles. The City’s significant accounting policies presented to reconcile and explain the differences in net position as presented in these statements to the are described below. net position presented in the Government-Wide financial statements.

A. Basis of Accounting and Measurement Focus All governmental funds are accounted for on the “current financial resources” measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are The accounts of the City are organized on the basis of funds, each of which is considered a separate included on the Balance Sheets. The Statement of Revenues, Expenditures and Changes in Fund accounting entity. The operations of each fund are accounted for in a separate set of self-balancing Balances presents increases (revenues and other financing sources) and decreases (expenditures and other accounts that comprise its assets, liabilities, deferred outflows/inflows of resources, fund equity, financing uses) in net current assets. revenues, and expenditures or expenses. City resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities Under the modified accrual basis of accounting, revenues are recognized in the accounting period in are controlled. which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received such as business licenses and fines and penalties in Government-Wide Financial Statements - The Government-Wide Financial Statements include a cash, except that revenues subject to accrual (generally ninety days after the fiscal year-end) are Statement of Net Position and a Statement of Activities. These statements present summaries of recognized when due. The primary revenue sources which have been treated as susceptible to accrual by Governmental and Business-Type Activities for the City accompanied by a total column. Governmental the City are property taxes, sales taxes, transient occupancy taxes, franchise taxes, certain other activities generally are financed through taxes, intergovernmental revenues, and other non-exchange intergovernmental revenues, and earnings on investments. Expenditures are recorded in the accounting transactions. Business-type activities are financed in whole or in part by fees charged to external parties. period in which the related fund liability is incurred also generally sixty days after the fiscal year end. Fiduciary activities of the City are not included in these statements; they are presented separately. Reconciliations of the Fund Financial Statements to the Government-Wide Financial Statements are The Statement of Activities presents a comparison between direct expenses and program revenues for provided to explain the differences between the two approaches. each segment of the business-type activities of the City and for each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, Proprietary Fund Financial Statements - Proprietary Fund Financial Statements include a Statement of therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by Net Position, a Statement of Revenues, Expenses and Changes in Fund Net Position, and a Statement of the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted Cash Flows for each major proprietary fund and in the aggregate for all non-major funds. A column to meeting the operational needs of a particular program and (c) fees, grants and contributions that are representing internal service funds is also presented in these statements. However, internal service restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as balances and activities have been combined with the governmental activities in the Government-Wide program revenues, including all taxes, are presented as general revenues. Financial Statements.

The Government-wide financial statements are presented on an “economic resources” measurement Proprietary funds are accounted for using the “economic resources” measurement focus and the accrual focus and the accrual basis of accounting. Accordingly, all of the City’s assets, deferred basis of accounting. Accordingly, all assets, liabilities and deferred outflows/inflows of resources outflows/inflows of resources and liabilities, including capital assets as well as infrastructure assets and (whether current or non-current) are included on the Statement of Net Position. The Statement of long-term liabilities, are included in the Statement of Net Position. The Statement of Activities presents Revenues, Expenses and Changes in Fund Net Position presents increases (revenues) and decreases all the City’s revenues, expenses and other changes in Net Position. Under the accrual basis of (expenses) in total net position. accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred, regardless of when cash All internal balances in the Statement of Net Position have been eliminated except those representing changes hands. balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total column. In the Statement of Activities, internal service fund Operating revenues in the proprietary funds are those revenues that are generated from the primary transactions have been eliminated. However, transactions between governmental and business-type operations of the fund. All other revenues are reported as non-operating revenues. Operating expenses activities have not been eliminated. are those expenses that are essential to the primary operations of the fund. All other expenses are reported as non-operating expenses.

42 43 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fiduciary Fund Financial Statements and Statement of Changes in Net Position - Fiduciary Fund The City also reports the following fund types: Financial Statements include a Statement of Fiduciary Net Position, and a Statement of Changes in Fiduciary Net Position. The City’s Fiduciary funds represent Pension and OPEB Trust funds, Private- Internal Service Funds. The funds account for insurance reserves, equipment services and Purpose Trust funds and Agency funds. Agency funds are custodial in nature (assets equal liabilities) replacement and police telecommunications, all of which are provided to other departments on a and do not involve measurement of results of operations. Pension Trust funds and Private-Purpose Trust cost-reimbursement basis. funds are accounted for on an economic resources measurement focus under the accrual basis of accounting. Trust Funds. The Pension and OPEB Trust Funds account for assets held by the City as an Agent for various functions. The General Pension, Police and Fireman’s and Garfield Pension B. Major Funds Funds account for the accumulation of resources to be used for retiree pension payments at appropriate amounts and times in the future. The Pt. Molate Private-Purpose Trust Fund is used Major funds are defined as funds that have either assets, liabilities, revenues or expenditures/expenses to account for assets held by the City as an agent for the U.S. Navy and a private developer for equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is the cleanup of Point Molate as discussed in Note 16G. The Successor Agency to the Richmond always a major fund. The City may also select other funds it believes should be presented as major funds. Community Redevelopment Agency Private-Purpose Trust Fund was established as of February 1, 2012 to account for the activities of the Successor Agency to the former Richmond Community The City reported the following major governmental funds in the accompanying financial statements: Redevelopment Agency as discussed in Note 17. The financial activities of the Trust Funds are excluded from the Government-wide financial statements, but are presented in the separate General Fund – The General Fund is used for all the general revenues of the City not Fiduciary Fund financial statements. specifically levied or collected for other City funds and the related expenditures. The General Fund accounts for all financial resources of a governmental unit which are not accounted for in Agency Funds. These funds are used to account for assets held by the City as an agent for another fund. individuals, private organizations, and other governments, including special assessment districts within the City and non-public organizations. The financial activities of these funds are excluded Community Development and Loan Programs Special Revenue Fund – The Community from the government-wide financial statement, but are presented in separate Fiduciary Fund Development and Loan Programs Special Revenue Fund accounts for the receipt of Community financial statements. Development Block Grant, HOME Investment Partnership Program, and Neighborhood Stabilization Program grant monies and the use of the grants. The Fund also accounts for the low C. Prepaids and Supplies and moderate income housing activities of the City as Housing Successor to the former Redevelopment Agency. Related to the grant disallowed costs discussed in Notes 5 and 16D, the Certain payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid City purchased certain loans that had previously been funded with Community Development items in both government-wide and fund financial statements. The cost of prepaid items is recorded as Block Grant and HOME funds. The grants and loan programs are to be used to provide, within expenditures/expenses when consumed, rather than when purchased. Prepaid items in governmental the City of Richmond, new affordable housing, improve existing housing conditions, assist funds are equally offset by nonspendable fund balance which indicates that they do not constitute homeless and disabled with housing, and to expand economic opportunities in business, and available spendable resources even though they are a component of net current assets. employment for low and moderate income residents. Supplies are valued at cost using the weighted average method. Supplies of the governmental funds The City reported the following major enterprise funds in the accompanying financial statements: consist of expendable supplies held for consumption. The cost is recorded as an expenditure in the governmental funds at the time individual inventory items are consumed rather than when purchased. Richmond Housing Authority – This fund accounts for all funds provided by the Department of Reported governmental fund inventories are equally offset by nonspendable fund balance which indicates Housing and Urban Development (HUD) to assist low income families in obtaining decent, safe that they do not constitute available spendable resources even though they are a component of net current and sanitary housing. assets.

Port of Richmond – This fund accounts for all financial transactions relating to the City-owned marine terminal facilities and commercial property rentals.

Municipal Sewer – This fund accounts for all financial transactions relating to the City’s Wastewater Collection and Treatment. Services are on a user charge basis to residents and business owners located in Richmond.

44 45 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

D. Compensated Absences F. Expenditures in Excess of Appropriations

Compensated absences comprise unused vacation and certain other compensated time off, which are The following funds incurred departmental expenditures in excess of appropriations. accrued and charged to expense as earned. Governmental funds include only amounts that have matured, while their long-term liabilities are recorded in the Statement of Net Position. Excess of Expenditures Changes in compensated absence liabilities for the fiscal year were as follows: Over Fund/Department Appropriations Governmental Business-Type Activities Activities Total General Fund General government $2,229,716 Beginning Balance $12,637,183 $457,578 $13,094,761 Debt service - interest and fiscal charges 184 Additions 7,979,960 274,238 8,254,198 Community Development and Loan Programs Special Revenue Fund Payments (7,220,134) (258,750) (7,478,884) Community development 2,138,527 (A) State Gas Tax Special Revenue Fund Ending Balance $13,397,009 $473,066 $13,870,075 Capital outlay 22,143 Landscaping and Lighting Special Revenue Fund Current Portion $7,409,289 $156,307 $7,565,596 Debt service - principal 4,582 Cost Recovery Special Revenue Fund The long-term portion of governmental activities compensated absences is liquidated primarily by the Public safety 384,253 General Fund. Compensated absences for business-type activities are liquidated by the fund that has Public works 151,726 recorded the liability. Civic Center Debt Service Fund Debt service - interest and fiscal charges 2,049 E. Property Tax Levy, Collection and Maximum Rates (A) Expenditures in the Community Development and Loan Program Special Revenue Fund exceeded The State of California’s Constitution limits the combined maximum property tax rate on any given budget primarily due to the disbursement of the RHA RAD loan discussed in Note 5 due to an property to one percent of its assessed value except for voter approved incremental property taxes. oversight during the budget process. The fund had sufficient resources to finance these expenditures. Assessed value equals purchase price and may be adjusted by no more than two percent per year unless the property is modified, sold, or transferred. The State Legislature distributes property tax receipts from G. Deferred Outflows/Inflows of Resources among the counties, cities, school districts, and other districts. In addition to assets, the statement of net position or balance sheet report a separate section for deferred Contra Costa County assesses properties and bills for and collects property taxes as follows: outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as Secured Unsecured an outflow of resources (expense/expenditure) until then. The first item that qualifies for reporting in this Valuation/lien dates January 1 March 1 category is the deferred charge on refunding reported in the statement of net position. A deferred charge Levied dates July 1 July 1 on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. Due dates 50% on November 1 July 1 This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The 50% on February 1 City also has deferred outflows of resources related to pensions and OPEB as discussed in Notes 10, 11 Delinquent as of December 10 (for November) August 31 and 12. April 10 (for February)

The term “unsecured” refers to taxes on personal property other than land and buildings. These taxes are secured by liens on the property being taxed. Property taxes levied are recorded as revenue in the fiscal year of levy.

46 47 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In addition to liabilities, the statement of net position or balance sheet report a separate section for J. Fair Value Measurements deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance that applies to a future period(s) and so will not Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an be recognized as an inflow of resources (revenue) until that time. The first item which qualifies for orderly transaction between market participants at the measurement date. The City categorizes its fair reporting in this category arises only under a modified accrual basis of accounting. Accordingly, the value measurements within the fair value hierarchy established by generally accepted accounting item, unavailable revenue, is only reported in the governmental funds balance sheet. The governmental principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair funds report unavailable revenues from three sources: loans receivable, grants receivable and interest on value into three levels based on the extent to which inputs used in measuring fair value are observable in interfund advances. See Note 8 for further discussion. The City also has deferred inflows of resources the market. related to pensions and OPEB as discussed in Notes 10, 11 and 12. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. H. Bond Issuance Costs, Original Issue Discounts and Premiums and Deferred Charge on Refunding Level 2 inputs are inputs – other than quoted prices included within level 1 – that are For proprietary fund types, bond premiums and discounts are deferred and amortized over the life of the observable for an asset or liability, either directly or indirectly. bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Any differences between proprietary refunded debt and the debt issued to refund it, called a Level 3 inputs are unobservable inputs for an asset or liability. deferred charge on refunding, is amortized over the remaining life of either the refunded debt or the refunding debt, whichever is shorter. The deferred charge on refunding is reported as a deferred inflow or If the fair value of an asset or liability is measured using inputs from more than one level of the fair value outflow of resources, as applicable. Bond issuance costs, other than prepaid insurance, are expensed in hierarchy, the measurement is considered to be based on the lowest priority level input that is significant the year incurred. to the entire measurement.

I. Property Held for Resale K. OPEB Liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB

Property held for resale is accounted for at the lower of cost or net realizable value or agreed upon sales For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of price if a disposition agreement has been made with a developer. resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s OPEB Plan and additions to/deductions from the OPEB Plan’s fiduciary net position have been The City received five properties for resale in fiscal year 2013 with a book value of $573,822 from the determined on the same basis as they are reported by the PARS Trust. For this purpose, benefit acceptance of a deed in lieu of foreclosure on the property related to developer defaults on prior loans payments are recognized when currently due and payable in accordance with the benefit terms. under the Richmond Neighborhood Stabilization loan program discussed in Note 5. These properties were Investments are reported at fair value. rehabilitated during fiscal years 2014 and 2015 increasing the carrying value by a total of $749,716 and $39,303, respectively. In fiscal year 2014, the City received an additional four properties with a carrying L. Use of Estimates value of $648,238. Six properties were sold in fiscal year 2016, the remaining two properties held for resale had a book value of $671,255 as of June 30, 2017. In fiscal year 2018, one property was sold The preparation of financial statements in conformity with generally accepted accounting principles during the year, and the carrying value of the one remaining property held for resale was $78,016 as of (GAAP) requires management to make estimates and assumptions that affect the reported amounts of June 30, 2018. assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 3 – CASH AND INVESTMENTS

A. Investments and Cash Deposits

The City maintains a cash and investment pool of cash balances and authorized investments of all funds except for funds required to be held by fiscal agents under the provisions of bond indentures, which the City Treasurer invests to enhance interest earnings. The pooled interest earned is allocated to the funds based on average month-end cash and investment balances in these funds.

48 49 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 3 – CASH AND INVESTMENTS (Continued) NOTE 3 – CASH AND INVESTMENTS (Continued)

The City and its fiscal agents invest in individual investments and in investment pools. Individual D. Investments Authorized by the California Government Code and the City’s Investment Policy investments are evidenced by specific identifiable pieces of paper called securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book Under the provisions of the City’s Investment Policy, and in accordance with California Government Code, entry system. Individual investments are generally made by the City’s fiscal agents as required under its the following investments are authorized: debt issues. In order to maximize security, the City employs the Trust Department of a bank as the custodian of all City managed investments, regardless of their form. Minimum Maximum Maximum Maximum Credit Percentage Investment All investments are stated at fair value. Market value is used as fair value for all securities. Authorized Investment Type Maturity Quality of Portfolio In One Issuer

The California Government Code requires California banks and savings and loan associations to secure the U.S. Treasury Bills, Bonds and Notes 5 years A None None City’s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this Obligations issued by United States 5 years 90% None manner shall have the effect of perfecting a security interest in such collateral superior to those of a general Government Federally Sponsored creditor. Thus, collateral for cash deposits is considered to be held in the City’s name. The market value of Agencies pledged securities must equal at least 110% of the City’s cash depposits. California law also allows Treasury bonds and notes issued by the 5 years A None None institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the State of California or any local agency City’s total cash deposits. The City may waive collateral requirements for cash deposits which are fully with California insured up to $250,000 by the Federal Deposit Insurance Corporation. The City, however, has not waived the Commercial Paper 270 days Top rating 10% (A) 10% collateralization requirements. category

B. Cash, Cash Equivalents and Investments Negotiable Certificates of Deposit 5 years A 20% None Medium Term Corporate Notes 5 years A 30% None

For purposes of reporting cash flows, the City considers each fund’s share in the cash and investments Money Market Mutual Funds N/A Top rating 15% None pool and restricted cash and investments to be cash and cash equivalents. category

C. Classification California Local Agency Investment Fund N/A None $65 Mil/ acct (LAIF) Cash and investments are classified in the financial statements as shown below at June 30, 2018: Investment Trust of California (CalTrust) N/A None None

Cash and investments $88,732,222 Restricted cash and investments 42,272,524 (A): City may invest an additional 15% or a total of 25% of City surplus money, only if dollar- Total Primary Government cash and investments 131,004,746 weighted average maturity of the entire amount does not exceed 31 days.

Prohibited Investments Cash and investments 1,239

Total Discrete Component Unit cash and investments 1,239 Under the City’s Investment Policy, the City imposed restrictions on investments. The City cannot invest in any funds in inverse floaters, range notes, or interest only Separate Trading of Registered Interest and Cash and investments in Fiduciary Funds (Separate Statement) Principal of Securities (STRIPS) that are derived from a pool of mortgages, or in any security that could Cash and investments 21,922,943 result in zero interest accrual if held to maturity (other than money market mutual funds). Restricted cash and investments 26,178,665 Investments in reassessment bonds 9,335,607 Total Fiduciary Funds cash and investments 57,437,215 Total cash and investments $188,443,200

50 51 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 3 – CASH AND INVESTMENTS (Continued) NOTE 3 – CASH AND INVESTMENTS (Continued)

E. Investments Authorized by the California Government Code and the Housing Authority’s Investment G. Interest Rate Risk Policy Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an The California Government Code allows the Authority to invest in the following; provided approved investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value percentages and maturities are not exceeded. The table below also identifies certain provisions of the to changes in market interest rates. One of the ways the City manages its exposure to interest rate risk is California Government Code: by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as Maximum necessary to provide the cash flow and liquidity needed for operations. Specified Minimum Maximum Percentage Credit Information about the sensitivity of the fair values of the City’s investments (including investments held Authorized Investment Type Maturity of Portfolio Quality by bond trustees) to market interest rate fluctuations is provided by the following table that shows the Local Agency Bonds 5 years None None distribution of the City’s investments by maturity or earliest call date: U.S. Treasury obligations 5 years None None Remaining Maturity (in Months) State of California obligations 5 years None None 13 to 24 25 to 60 More than 60 CA Local Agency obligations 5 years None None 12 months or Less Months Months months Total U.S. Agencies 5 years None None Primary Government: Banker's Acceptances 180 days 40% A1/P1 Federal Agency Securities $2,994,510 $2,994,510 California Local Agency Investment Fund 56,968,398 56,968,398 Commercial Paper - select agencies 270 days 40% A1/P1 CalTrust Short Term Fund 24,642,068 24,642,068 Commercial Paper - other agencies 270 days 25% None CalTrust Medium Term Fund 83,773 83,773 Negotiable Certificates of Deposit 5 years 30% None Held by Trustee: Money Market Mutual Funds (U.S. Securities) 60,710,585 60,710,585 Repurchase Agreements 1 year None None Investment Agreement $1,039,778 1,039,778 Reverse Repurchase Agreements and Guaranteed Investment Contracts $564,000 625,001 1,189,001 Securities Lending Agreements 92 days 20% None Reassessment Bonds 1,125,000 $1,355,000 1,480,000 5,375,607 9,335,607 Medium Term Corporate Notes 5 years 30% A Total Investments $146,524,334 $1,355,000 $2,044,000 $7,040,386 156,963,720 Mutual Funds N/A 20% Multiple Cash in Banks and on hand - Primary Government 31,478,241 Money Market Mutual Funds N/A 20% Multiple Cash in Banks - RHA Housing Corporation 1,239 Collateralized Bank Deposits 5 years None None Total Cash and Investments $188,443,200 Mortgage Pass-Through Securities 5 years 20% AA Time Deposits 5 years None None The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California County Pooled Investment Funds N/A None None Government Code Section 16429 under the oversight of the Treasurer of the State of California. The City California Local Agency Investment Fund N/A None None reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value

of the pool share. The balance is available for withdrawal on demand, and is based on the accounting There are no restrictions on the maximum amount invested in each security type or maximum that can be records maintained by LAIF, which are recorded on an amortized cost basis. Each regular LAIF account invested in any one issuer. is permitted to have up to 15 transactions per month, with a minimum transaction amount of $5,000, a maximum transaction amount of $65 million and at least 24 hours advance notice for withdrawals of $10 The Authority does not have reverse repurchase agreements. million or more. Bond proceeds accounts are subject to a one‐time deposit with no cap and are set up with a monthly draw down schedule. Included in LAIF’s investment portfolio are collateralized mortgage F. Investments Authorized by Debt Issues and Lease Agreements obligations, mortgage-backed securities, other asset-backed securities, loans to certain state funds, and floating rate securities issued by federal agencies, government-sponsored enterprises, United States Under the terms of the City’s and Agency’s and debt issues and lease agreements, the City and Agency are Treasury Notes and Bills, and corporations. At June 30, 2018, these investments matured in an average of subject to various restrictions in the type, maturity and credit ratings of investments of the unspent proceeds 193 days. of these issues. These restrictions are generally no more restrictive than those listed above regarding investment of the City’s and Agency’s funds. In addition, some bond indentures authorize investments in guaranteed investment contracts and investment agreements with maturity dates that coincide with the applicable debt maturities. At June 30, 2018, the City and Agency were in compliance with the terms of all these restrictions.

52 53 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 3 – CASH AND INVESTMENTS (Continued) NOTE 3 – CASH AND INVESTMENTS (Continued)

The City is a participant in the Short-Term Fund and Medium-Term Fund of the Investment Trust of I. Fair Value Hierarchy California (CalTrust), a joint powers authority and public agency established by its members under the provisions of Section 6509.7 of the California Government Code. Members and participants are limited The City categorizes its fair value measurements within the fair value hierarchy established by generally to California public agencies. CalTrust is governed by a Board of Trustees of seven Trustees, at least accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value seventy-five percent of whom are from the participating agencies. The City reports its investment in of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are CalTrust at the fair value amount provided by CalTrust, which is the same as the value of the pool shares. significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The balance in the Short-Term Fund is available for withdrawal on demand and the balance in the Medium-Term Fund is available for withdrawal upon two days’ notice, and is based on the accounting The following is a summary of the fair value hierarchy of the fair value of investments of the City as of records maintained by CalTrust. Included in CalTrust’s investment portfolio are: United States Treasury June 30, 2018: Notes, Bills, Bonds or Certificates of Indebtedness; registered state warrants or treasury notes or bonds; California local agency bonds, notes, warrants or other indebtedness; federal agency or United States Investment Type Level 2 Total government-sponsored enterprise obligations; bankers acceptances; commercial paper; negotiable Investments Measured at Fair Value: certificates of deposit; repurchase agreements; medium-term notes; money market mutual funds; notes, Federal Agency Securities $2,994,510 $2,994,510 bonds or other obligation secured by a first priority security interest in securities authorized under Investments Measured at Amortized Cost: Government Code Section 53651; and mortgage passthrough securities, collateralized mortgage obligations, and other asset – backed securities. CalTrust’s Short-Term Fund has a target portfolio Held by Trustee: duration of 0 to 2 years and CalTrust’s Medium-Term Fund has a target portfolio duration of 1.5 to 3.5 Investment Agreement 1,039,778 years. At June 30, 2018 the Short-Term Fund investments matured in an average of 347 days and the Guaranteed Investment Contracts 1,189,001 Medium-Term Fund investments matured in an average of 799 days. Reassessment Bonds 9,335,607 Money Market Funds 60,710,585 Money market funds and mutual funds are available for withdrawal on demand and as of June 30, 2018 Investments Not Subject to Fair Value Hierarchy: have an average maturity from 20 to 39 days. California Local Agency Investment Fund 56,968,398 CalTrust Short Term Fund 24,642,068 H. Credit Risk CalTrust Medium Term Fund 83,773

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the Total Investments $156,963,720 investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of June 30, 2018 for each investment type: Federal agency securities are classified in Level 2 of the fair value hierarchy, are valued using matrix

pricing techniques maintained by various pricing vendors. Matrix pricing is used to value securities based Investment Type AAAm AAf AA+ A+f Total on the securities’ relationship to benchmark quoted prices. These prices are obtained from various pricing Federal Agency Securities $2,994,510 $2,994,510 sources by our custodian bank. Fair value is defined as the quoted market value on the last trading day of Money Market Mutual Funds (U.S. Securities) $60,710,585 60,710,585 the period. CalTrust Short Term Fund $24,642,068 24,642,068 CalTrust Medium Term Fund $83,773 83,773 J. Concentration of Credit Risk Totals $60,710,585 $24,642,068 $2,994,510 $83,773 88,430,936

Not Rated: Significant investments in the securities of any individual issuers, other than U. S. Treasury securities, California Local Agency Investment Fund 56,968,398 investment pools and money market funds, in Fiduciary Funds at June 30, 2018 were as follows: Investment Agreement 1,039,778 Guaranteed Investment Contracts 1,189,001 Fiduciary Funds Issuer Type of Investment Amount Reassessment Bonds 9,335,607 Agency Funds: Total Investments 156,963,720 2006 A&B Reassessment District City of Richmond JPFA Municipal Bonds $7,685,607 Cash in Banks and On Hand 31,479,480 JPFA Reassessment City of Richmond JPFA Municipal Bonds 1,650,000 Total Cash and Investments $188,443,200

54 55 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 4 – INTERFUND TRANSACTIONS NOTE 4 – INTERFUND TRANSACTIONS (Continued)

A. Current Interfund Balances In fiscal 2007, the former Redevelopment Agency advanced $174,067 to the Richmond Housing Authority Enterprise Fund, collateralized by a deed of trust on the Westridge at Hilltop Apartments, to assist the Current interfund balances arise in the normal course of business and represent short-term borrowings Authority with its lease payments for the 2003 A-S Multifamily Housing Revenue Bonds. The loan bears occurring as a result of expenditures which are paid prior to the receipt of revenues. These balances are interest of 3%. In fiscal 2012, the advance receivable was transferred to the City as Housing Successor to expected to be repaid shortly after the end of the fiscal year when revenues are received. Current amounts the former Redevelopment Agency and is recorded in the Community Development and Loan Programs due from one fund to another at June 30, 2018 were as follows: Special Revenue Fund.

Due From Other Funds Due To Other Funds Amount In fiscal years 2007 through 2014, the General Fund and the Municipal Sewer and Storm Sewer Internal Service Fund Community Development and Loan Programs Special Revenue Fund $340,111 Enterprise Funds made advances to the Richmond Housing Authority Enterprise Fund for police, sewer, Non Major Governmental Funds 6,588,191 and other services as well as the Housing Authority’s employee payroll. The advance repayment terms Richmond Housing Authority Enterprise Fund 3,657,170 were amended in April 2010 and the advance bears no interest and was payable in 135 monthly Port of Richmond Enterprise Fund 2,919,904 installments of $30,000 and one final installment of $22,446 on or before August 1, 2021. On June 28, Non Major Enterprise Funds 961,930 2011 the agreement was amended to make the monthly payments $50,000 for the remaining 71 Total $14,467,306 payments, starting July 1, 2011, and one final installment of $36,634. However, in lieu of monthly payments, repayment may be in a lump sum on August 1, 2021. During fiscal year 2013, $6,600,000 of B. Long-Term Interfund Advances the advance was assumed by RHA Properties and was classified as a loan receivable, as discussed in Note 5. No repayments were made during fiscal year 2018 and the remaining balance of the interfund At June 30, 2018 the funds below had made advances which were not expected to be repaid within the advance as of June 30, 2018 is $1,068,847. next year. In fiscal 2006 the General Fund established repayment terms for its advance of $17,139,855 to the Port of Amount of Richmond Enterprise Fund to assist the Port with various lease transactions and other projects. The Fund Receiving Advance Fund Making Advance Advance advance did not bear interest for the first three years; the next five years it bore an interest rate of 4%, with the balance payable on or before June 30, 2015. The advance repayment terms were amended in Richmond Housing Authority Enterprise Fund General Fund $2,215,970 Community Development and Loan Programs 174,067 October 2013, effective June 30, 2013, to convert the accrued unpaid interest of $745,119 to principal and Special Revenue Fund reduce the advance balance by $842,877, and the advance no longer bears interest. Annual principal Municipal Sewer Enterprise Fund 901,396 payments of $150,000 are due beginning June 30, 2014 through June 30, 2066, with a final principal Non Major Enterprise Funds 167,451 payment of $32,593 due on June 30, 2067, and in addition to those payments, the annual berthing cost of Port of Richmond Enterprise Fund General Fund 13,917,312 the vessel Red Oak Victory at the Port that is to be paid by the General Fund will instead offset and Non Major Enterprise Funds Internal Service Funds 2,360,403 reduce the principal balance of the advance based on an established rental schedule. Historical rental Total $19,736,599 payments from August 2004 to June 30, 2012 totaling $842,877 were applied to the principal balance of the loan as of June 30, 2013. Another provision of the amended agreement provides that upon the sale of any Port property, including Terminal One and Terminal Four, the proceeds from the sale are to be used Under the terms of a May 2013 Memorandum of Understanding (MOU) between the Housing Authority to repay and reduce the principal balance of the advance. The balance of the advance as of June 30, 2018 and RHA Properties, RHA Properties had paid a financial sanction imposed by the Office of the Inspector is $13,917,312. General (OIG) of $2,257,799 to the Housing Authority from the sale proceeds of the Westridge at Hilltop Apartments. The Housing Authority used those proceeds to retire outstanding debt owed to the General In fiscal 2008 the General Fund advanced $1,758,342 to the Storm Sewer Enterprise Fund for the Fund in fiscal year 2017. The Department of Housing and Urban Development (HUD) disputed the use purpose of providing a clean storm sewer system and street sweeping activities. In fiscal year 2009 the of the sale proceeds for the repayment of the General Fund loan, as discussed in Note 16D. Although advance was moved to the Insurance Reserves Internal Service Fund. The advance bears interest of management disputed HUD’s claim, in April 2018 the City and RHA entered into a settlement agreement 4.34% and is payable as follows: Semi-annual principal and interest payments in the amount of $52,460 with HUD under which the City agreed to return $2,096,527 to the Housing Authority, which are to be made April 30 and December 31 of each year commencing in December 2009 until December reestablished the General Fund’s loan to the Housing Authority. During fiscal year 2018, the prior short- 2038. The final interest payment of $52,298 and the outstanding principal balance is due April 30, 2039. term amount due to the General Fund of $119,443 to the Housing Authority for Hope VI was added and The Storm Sewer Enterprise Fund did not make the required payments during fiscal years 2015, 2016, 2017 the balance of the advance was $2,215,970 as of June 30, 2018. and 2018; therefore unpaid interest of $257,218 was added to the balance of the loan. The balance of the advance and accrued interest as of June 30, 2018 is $2,360,403.

56 57 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 4 – INTERFUND TRANSACTIONS (Continued) NOTE 5 – NOTES AND LOANS RECEIVABLE

C. Transfers Between Funds At June 30, 2018, notes and loans receivable consisted of the following:

With Council approval, resources may be transferred from one City fund to another. The purpose of the Amount majority of the transfers is to move General Fund resources to provide an annual subsidy to the Cost Recovery Fund and other non-major governmental funds, as well fund debt service, pension costs and CalTrans Loan $508,571 capital projects. Transfers between funds during the fiscal year ended June 30, 2018 were as follows: RHA RAD Project Loan 703,471

Amount Richmond Neighborhood Stabilization Loans 779,013 Fund Receiving Transfers Fund Making Transfers Transferred East Bay Center for the Performing Arts 150,000 General Fund Non Major Governmental Funds $5,948,337 Community Development Block Grant, Home Investment Non Major Enterprise Fund 86,778 Partnership Program, EDA, CALHome Loans and City Loans Non Major Governmental Funds General Fund 5,683,346 Deferred Loans 4,004,695 Community Development and Loan Programs 255,762 Non Major Governmental Funds 2,497,941 Home Improvement Program Loans 908,980 Internal Service Funds General Fund 483,520 Rental Rehabilitation Loans 388,600 Total Interfund Transfers $14,955,684 Infill Phase II Loan 1,331,709 The Carquinez Project 148,490 None of these transfers were unusual or non-recurring in nature, except for the transfer from the Secured Creely Avenue Housing Rehabilitation Loan (Arbors) 2,263,659 Pension Override Special Revenue Fund to the General Fund in the amount of $5,748,337 to fund current Lillie Mae Jones Project Loan 1,254,751 year pension contributions to CalPERS, which is included in transfers from Non-Major Governmental Nevin Court Homeowner Development Project 479,245 Funds. EDA Loans 421,824

CALHome Program 2,787,725 D. Internal Balances RHA RAD Project Loan 3,612,033 Internal balances are presented in the Government-wide financial statements only. They represent the net Subtotal - CDBG, HOME, EDA, CALHome Loans, City Loans 17,601,711 interfund receivables and payables remaining after the elimination of all such balances within governmental and business-type activities. Housing Successor Loans: Rental Rehabilitation Loans 20,000 The Carquinez Project 1,152,510 Creely Avenue Housing Rehabilitation Loan (Arbors) 2,127,399 Lillie Mae Jones Project Loan 2,339,642 Miraflores Loan 2,786,392 MacDonald Place Senior Housing 4,650,715 Heritage Park Development 43,166 Silent Second Mortgage Loans 1,749,161 Deferred Loans 374,401 Chesley Avenue Mutual Housing Development 5,927,460 Easter Hill Project 4,743,488 RHA RAD Project Loan 1,105,455 Subtotal - Housing Successor Loans 27,019,789 Total Notes and Loans Receivable $46,762,555

58 59 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)

CalTrans Loan In December 2015, the loan agreement was replaced and the City entered into an amended agreement to loan $5,400,000 to the RHA Housing Corporation for the furtherance of the development of the RAD The total of $508,571 consists of two loans from the City of Richmond to Richmond Neighborhood Projects as discussed in Note 16J. Funding for the loan was revised in fiscal year 2018 and is as follows: Housing Services. These are pass-through loans from CalTrans for the construction of 27 homes located $700,000 from the City’s General Fund, $3,600,000 will come from housing-in-lieu funds and in North Richmond. $1,100,000 from the Housing Successor funds. The housing-in-lieu funds and Housing Successor Funds are included in the Community Development and Loan Programs Fund. RHA Housing Corporation Police Chief Loan assigned the loan agreement and associated obligations to RHA RAD Housing Partners L.P. on December 22, 2015 upon closing of the financing for the rehabilitation of the RAD projects. See Note Under the Resolution Number 169-05, the City made a long-term loan of $150,000, and a short-term loan 16J for additional information related to the RAD projects. The loan is secured by a leasehold deed of of $50,000, for a total loan amount of $200,000, to finance the acquisition of the Police Chief’s personal trust, assignment of rents and security agreement. The loan bears simple interest of 1% and the loan is residence located within the City of Richmond. The loan is secured by a deed of trust on the property. repayable from residual receipts, as defined in the loan agreement, starting May 1 of the year after The loan is due upon sale of the property, within eighteen months after the Police Chief’s employment issuance of the Certificate of Completion, and unpaid principal and accrued interest is due December 1, with the City terminates, or fifteen years from the date of the loan, whichever occurs first. The Police 2070. As noted above, $700,000 of the General Fund loan was disbursed in December 2014 and the Chief left the City in January 2016, and although he continues to make the scheduled loan payments balance at June 30, 2018, including accrued interest, was $703,471. As of June 30, 2018, $4,717,488 of under the terms of the agreement the loan was due in July 2017. The loan was amended and is now due the funds had been drawn down from the Housing Successor Community Development and Loan on June 30, 2018. The loan bears a variable interest rate from the date of disbursement until repaid in full Programs Fund. at an amount equal to the average annual interest rate of the California State Treasurer’s Office Local Agency Investment Fund, adjusted effective as of each annual anniversary date of the close of escrow of Richmond Neighborhood Stabilization Loans the Property purchased by the Police Chief. The short-term loan of $50,000 was repaid during fiscal year 2006. The remaining long-term loan balance of $51,066 was repaid during fiscal year 2018. The Richmond Neighborhood Stabilization Corporation (RNSC) operates a residential rehabilitation loan program financed by Department of Housing and Urban Development grants that have passed through Groundwork Richmond the City under its Neighborhood Stabilization Program (NSP1) and additional allocation under the third round of funding referred to as (NSP3). The program provides affordable home ownership opportunities On May 10, 2013 the City entered into an agreement to loan $9,995 in cash flow assistance to for households of low and moderate income by facilitating the development financing necessary for the Groundwork Richmond. Groundwork Richmond is a local non-profit organization dedicated to helping purchase, rehabilitation, and resale of deed-restricted affordable ownership units. During fiscal year the City of Richmond reach its goals for improving the outdoor environment, and to engaging local 2014, the City foreclosed on seven of the loans with a carrying value of $780,153 and reacquired the residents in specific outdoor improvement projects. The loan bears interest of 1.42% and was due on properties which have been recorded as property held for resale as discussed in Note 2I. As of June 30, December 31, 2013. The loan was amended in December 2014 to extend the repayment date to June 30, 2018, the total balance of outstanding loans for NSP1 was $779,013 and no NSP3 loans had been issued. 2015 and the loan was again amended in December 2015 to extend the repayment date to June 30, 2017. Loans are payable upon the resale of improved properties. The loan balance of $2,198 was repaid during fiscal year 2018. East Bay Center for the Performing Arts RHA RAD Project On June 12, 2009 the former Redevelopment Agency entered into an agreement to loan $2,500,000 to the In December 2014, the General Fund loaned $700,000 to the Richmond Housing Authority Enterprise East Bay Center (Center) for the Performing Arts to fund renovations to the Winters Building. The East Fund for predevelopment costs related to the Triangle Court and Friendship Manor Rental Assistance Bay Center for the Performing Arts is a California nonprofit public benefit corporation that offers Demonstration (RAD) Projects. programs and training in theater, music and dance. The loan bore interest of 3% per year and repayments of accrued interest was due in quarterly installments. The Center made a payment of $1,100,000 prior to January 31, 2012. Due to the dissolution of the Redevelopment Agency effective January 31, 2012 as discussed in Note 17, the balance of the loan was evaluated and it was determined that although the Redevelopment Agency implemented and administered the loan, the Insurance Internal Service Fund had funded the loan via an interfund advance and therefore the interfund advance was repaid in fiscal year 2012 by transferring the loan receivable to the Insurance Internal Service Fund. The agreement with the Center was amended on June 27, 2012, to reduce the interest rate to 0% and extend the repayment of the remaining $1,400,000 to June 30, 2016.

60 61 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)

On February 18, 2014, the agreement was amended a second time to extend the maturity date of the loan The Carquinez Project to June 30, 2018 and to provide an annual grant from the City in the amount of $200,000 for the next five years beginning in June 2014. The loan was amended a third time to extend the maturity date of the loan Under a loan agreement dated November 14, 2008, the former Redevelopment Agency loaned Carquinez to June 30, 2019. The annual grant will be used to reduce the balance of the loan each fiscal year. Associates, L.P. $1,000,000 to fund rehabilitation of a five-story building, with 36 apartments housing low-income seniors. On August 23, 2010 the agreement was amended to provide the Developer with a Deferred Loans total amount of $1,301,000. Funding for the loan is as follows: $1,152,510 funded by Series 2007 Bonds and $148,900 funded by CDBG. Repayments on the loan are to be made from residual receipts as defined Deferred loans are granted to low and moderate income families to assist them in purchasing their homes. in the agreement. The loan does not bear interest and the unpaid principal balance is due in November Emergency repair loans not exceeding $10,000 funded by the HOME Investment Partnership Program 2043. With the dissolution of the Redevelopment Agency as discussed in Note 17, the City agreed to (HIPP) are provided to low income families in Richmond to assist them in rehabilitating their existing become the successor to the Redevelopment Agency’s housing activities and as a result City, as Housing housing units. These loans are required to be repaid over a period of 15 years to 30 years. Successor, assumed the loans receivable of the Redevelopment Agency’s Low and Moderate Income Housing Fund, including the balance of the Carquinez loan as of February 1, 2012. Home Improvement Program Loans Creely Avenue Housing Rehabilitation (Arbors) “Silent second” mortgage loans are provided to low and moderate income first time homebuyers as gap financing to provide the minimum amount needed to close the gap between the primary lender’s On September 15, 2006, the former Redevelopment Agency and the City loaned Arbors Preservation requirements and the borrower’s ability to pay down payments or closing costs. Limited Partnership the amount of $2,558,557, to construct extremely low, very low and low income rental housing units and a new community room on Creely Avenue. On October 31, 2008, the loan was Home improvement program loans include amortized loans to assist low income families in Richmond in amended to provide the developer a total loan amount of $3,208,113. Funding for the loan is as follows: the improvement of their homes. The interest rates for these loans range from 0% to 3% and are payable $2,160,282 in HOME funds, $103,377 in CDBG funds and $1,594,057 in 2007 Series B bond funds. over a period of 15 to 30 years. Although the developer has not drawn down all of the proceeds from the HOME funds portion of the loan, the Department of Housing and Urban Development (HUD) has indicated that future drawdowns Rental Rehabilitation Loans will not be reimbursed by the grantor. The loan bears simple interest at the rate of 3% per year. All unpaid principal and interest on the loan is due on April 29, 2063. With the dissolution of the Rental Rehabilitation Loans help make rental units affordable to low and very low income housing Redevelopment Agency as discussed in Note 17, the City agreed to become the successor to the families. Loans assist private and non-profit owners in purchasing and rehabilitating existing multifamily Redevelopment Agency’s housing activities and as a result the City, as Housing Successor, assumed the housing units. loans receivable of the Redevelopment Agency’s Low and Moderate Income Housing Fund, including the

balance of the Arbors loan as of February 1, 2012. Scattered Site Infill Housing Development (Infill Phase II)

Under a loan agreement dated September 30, 2010, the City loaned Community Housing Development Corporation of North Richmond $1,198,013 to fund construction of 36 townhomes to be made available for very-low and low income households. Funding for the loan was as follows: $602,556 in HOME funds, $266,000 in CDBG funds and $329,457 in CDBG-R. Although the developer has not drawn down all of the proceeds from the HOME funds portion of the loan, the Department of Housing and Urban Development (HUD) has indicated that future drawdowns will not be reimbursed by the grantor. Related to the grant disallowed costs discussed in Note 16D, the City purchased $1,331,709 of the loan balance that had previously been funded with Community Development Block Grant and HOME funds. The current funding was for predevelopment activities in conjunction with the construction and development of the townhomes. The loan is secured by a deed of trust on the property. The outstanding balance of the loan bears simple interest at the rate of 3% per year. The payment of principal and interest is deferred and due at the end of the term due September 30, 2065. As of June 30, 2018, $1,331,709 had been drawn down on the loan.

62 63 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)

Lillie Mae Jones Project Housing Successor Loans

On January 19, 2010, the former Redevelopment Agency and the City entered into an agreement with With the dissolution of the Redevelopment Agency as discussed in Note 17, the City agreed to become Lillie Mae Jones Plaza, L.P. and the Community Housing Development Corporation of North Richmond the successor to the Redevelopment Agency’s housing activities and as a result City, as Housing to loan $3,119,000 to construct and provide 26 housing units to very low and low income households. Successor, assumed the loans receivable of the Redevelopment Agency’s Low and Moderate Income Funding for the loan is as follows: $1,081,291 in HOME funds, $84,000 in Section 108 funds and Housing Fund, including the balance of certain loans discussed above and all of the loans below as of $1,953,709 in 2007 Series B bonds. Although the developer has not drawn down all of the proceeds of the February 1, 2012. HOME funds portion of the loan, HUD has indicated that future drawdowns will not be reimbursed by the grantor. The loan bears an interest rate of 3% per year and repayments on the loan are to be made from Miraflores Loan residual receipts as defined in the agreement. All unpaid principal and accrued interest is due in January 2065. The agreement was amended in November 2011, due to securing a $293,884 loan from County of Under an amended loan agreement dated June 21, 2011, the City agreed to loan Community Housing Contra Costa with Mental Health Services Act, which specifies that two units are required to be available Development Corporation of North Richmond and Eden Housing, Inc., $1,465,000 to fund the to and occupied by Mental Health Services Act Eligible Tenants pursuant to the County Regulatory construction of 110 senior housing units for low and moderate income residents. Funding for the loan Agreement with Lillie Mae Jones Plaza, L.P. With the dissolution of the Redevelopment Agency as is as follows: $449,000 in CDBG funds, $925,000 in HOME funds, and $91,000 Redevelopment discussed in Note 17, the City agreed to become the successor to the Redevelopment Agency’s housing Agency Low and Moderate Income Housing Fund funds. Although the developer has not drawn activities and as a result the City, as Housing Successor, assumed the loans receivable of the down all of the proceeds of the HOME funds portion of the loan, HUD has indicated that future Redevelopment Agency’s Low and Moderate Income Housing Fund, including the balance of the Lillie drawdowns will not be reimbursed by the grantor. Related to the grant disallowed costs discussed in Mae Jones loan as of February 1, 2012. As of June 30, 2018, Lillie Mae Jones has drawn down Note 16D, the City purchased $1,208,258 of the loan balance that had previously been funded by $3,594,393. CDBG and HOME funds and the loans were transferred to the Housing Successor. Since the Housing Successor-funded loans are not offset by unavailable revenue, the transfer of those loans has been Nevin Court Homeowner Development Project reported as a special item. With the dissolution of the Redevelopment Agency as discussed in Note 17, the portion of the Miraflores loan that was funded by the Redevelopment Agency’s Low and In May 2005, the City entered into an agreement with Community Housing and Development Moderate Income Housing Fund was assumed by the City as Housing Successor. Corporation of North Richmond (Development), in the original amount of $227,000 to construct and develop 10 single family homes for low and moderate income households. The agreement was amended The loan does not bear interest and the unpaid principal balance was due September 22, 2015, unless it in November 2008, to increase the loan to $377,000. In fiscal year 2010, the Development drew down was converted to a permanent loan. The loan was converted into a permanent loan on June 25, 2015. $343,839, in fiscal year 2016 an additional $21,453 was drawn, and the outstanding balance of the loan is In addition to the converted permanent loan, the Housing Successor approved an additional $479,245, which includes accrued interest of $113,953. The loan bears interest of 3% per year and the predevelopment loan in the amount of $1,500,000. As of June 30, 2018, $2,786,392, of the loan had unpaid balance is due in November 2063. been drawn down.

EDA Loans MacDonald Place Senior Housing

The Agency’s Revolving Loan Fund (RLF) is a community based program with the goal of fostering On June 26, 2007, the former Redevelopment Agency agreed to loan MacDonald Housing Partners, local economic growth through the creation and retention of employment opportunities for Richmond L.P., and Richmond Labor and Love Community Development Corporation the amount of residents and complementing community and individual development initiatives. With the dissolution of $4,720,000, to construct senior housing units, a management office, small meeting rooms and the Redevelopment Agency as discussed in Note 17, the EDA loan program that was funded with grant ancillary retail use, and a separate space for community services. The loan’s principal is due 57 years funds from the Economic Development Administration is now administered by the City effective from the date of disbursement. The loan bears simple of interest of 2% per year payable from any February 1, 2012. residual receipts available from the prior calendar year with an additional 1% per year, but only to the extent that funds are available to pay such contingent interest from the Agency’s share of residual CALHome Program receipts, as defined in the agreement.

The CALHome loan program provides housing assistance to Richmond residents to assist with first-time homeowner down payments or rehabilitation projects for owner-occupied homes. The loans are secured by deeds of trust on the properties. Principal and interest on the loans are deferred for 30 years, unless otherwise specified in the promissory note. With the dissolution of the Redevelopment Agency as discussed in Note 17, the CALHome loan program that was funded with grant funds is now administered by the City effective February 1, 2012.

64 65 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) NOTE 6 – CAPITAL ASSETS (Continued)

Heritage Park Development Infrastructure includes streets systems, parks and recreation lands and improvement systems, storm water collection systems, and buildings combined with site amenities such as parking and landscaped areas In 1999, the former Redevelopment Agency loaned Hilltop Group, LP a total of $500,000, used by the City in the conduct of its business. Each major infrastructure system is divided into collateralized by deeds of trust and bearing interest at an effective rate of 1½% starting September subsystems. For example, the street system includes pavement, curbs and gutters, sidewalks, medians, 2004. The loans were used to finance the development of the Heritage Park Development in the City. streetlights, traffic control devices such as signs, signals and pavement markings, landscaping and land. Monthly installments of interest and principal in the total amount of $3,115 are payable through In the case of the initial capitalization of general infrastructure assets reported by governmental activities, September 1, 2019. the City chose to include all such items regardless of their acquisition date or amount.

Silent Second Mortgage Loans Net interest costs incurred during the construction of capital assets for the business-type and proprietary funds are capitalized as part of the asset’s cost. Loans were provided to qualifying individuals for the difference between the amount received by the individuals who qualified for low and moderate income housing loans and the amount needed to B. Current Year Activity purchase the homes. The loans are to be forgiven in the future if the property owners do not sell or refinance the property. The following is a summary of capital assets for governmental activities:

Chesley Avenue Mutual Housing Development Balance at Balance at June 30, 2017 Additions Retirements Transfers June 30, 2018 Governmental activities On December 1, 2003, the former Redevelopment Agency loaned Chesley Avenue Limited Partnership Capital assets not being depreciated: the amount of $4,741,492, which includes accrued interest of $1,185,968 to construct very low and Land $29,403,573 $21,094 $29,424,667 low income housing units. The loan’s principal is due in 2058; interest is payable starting May 1, 2006, at the rate of 2% per annum or in the amount of 95% of any residual receipts remaining from the prior Construction in progress 68,938,598 $12,761,765 ($322,371) (64,343,794) 17,034,198 year, whichever is less. Total capital assets not being depreciated 98,342,171 12,761,765 (322,371) (64,322,700) 46,458,865 Capital assets being depreciated: Easter Hill Project Buildings and improvements 154,354,725 1,392,684 155,747,409 Machinery and equipment 45,927,136 1,625,535 (778,481) 46,774,190 The loan from the former Redevelopment Agency to Easter Hill Development, L.P. is providing Land improvements and infrastructure 470,427,347 62,930,016 533,357,363 financial assistance in the development of the Easter Hill Project. The Easter Hill Project consists of Total capital assets being depreciated 670,709,208 1,625,535 (778,481) 64,322,700 735,878,962 single and multifamily home components. Easter Hill Development, L.P. shall use the loan to pay for Less accumulated depreciation for: predevelopment, acquisition and construction costs. The outstanding balance of the loan bears simple Buildings and improvements (37,105,802) (3,484,757) (40,590,559) interest at the rate of 2% per year. Repayments on the loan are to be made from residual receipts as Machinery and equipment (36,359,607) (2,382,759) 773,109 (37,969,257) defined in the agreement. All unpaid principal and accrued interest on the loan is due February 1, 2069. Land improvements and infrastructure (383,294,618) (11,853,189) (395,147,807) Total accumulated depreciation (456,760,027) (17,720,705) 773,109 (473,707,623) NOTE 6 – CAPITAL ASSETS Capital asset being depreciated, net 213,949,181 (16,095,170) (5,372) 64,322,700 262,171,339 Governmental activity capital assets, net $312,291,352 ($3,333,405) ($327,743) $308,630,204

A. Policies Governmental activities depreciation expenses for capital assets is charged to functions and programs Capital assets are valued at historical cost or at estimated acquisition value on the date donated. If actual based on their usage of the related assets. The amounts allocated to each function or program for the year historical costs are not available, assets have been valued at approximate historical cost. The City’s ended June 30, 2018 were as follows: policy is to capitalize assets costing at least $5,000, and the Housing Authority’s policy is to capitalize assets costing at least $1,000. Depreciation is recorded on a straight-line basis over the following Governmental Activities estimated useful lives: General Government $3,618,724 Public Safety 1,303,058 Improvements other than buildings 20 years Public Services 11,217,479 Buildings and building improvements 20 - 50 years Cultural and Recreational 424,728 Vehicles 3 – 10 years Internal Service Funds 1,156,716 Infrastructure 25 - 50 years Total Governmental Activities $17,720,705 Machinery and equipment 3 – 20 years

66 67 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 6 – CAPITAL ASSETS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS

The following is a summary of capital assets for business-type activities: Government-Wide Financial Statements – Long-term debt is reported as liabilities of the appropriate governmental or business-type activity. Balance at Balance at June 30, 2017 Additions Transfers June 30, 2018 Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight- Business-type activities line method. Bonds payable are reported net of the applicable premium or discount. Issuance costs are Capital assets not being depreciated: expensed in the year incurred. Land $7,195,986 $7,195,986 Construction in progress 32,139,210 $16,415,211 ($20,152,901) 28,401,520 Fund Financial Statements – Proprietary fund financial statements report long-term debt under the Total capital assets not being depreciated 39,335,196 16,415,211 (20,152,901) 35,597,506 same principles as the City-wide financial statements. Governmental fund financial statements do not Capital assets being depreciated: present long-term debt. Buildings and improvements 79,313,834 79,313,834 Machinery and equipment 17,528,809 17,528,809 Governmental funds report bond premiums, discounts and issuance costs in the year the debt is issued. Infrastructure 204,183,151 20,152,901 224,336,052 Bond proceeds are reported as other financing sources net of premium or discount. Issuance costs are Total capital assets being depreciated 301,025,794 20,152,901 321,178,695 reported as debt service expenditures. Less accumulated depreciation for: Buildings and improvements (49,997,408) (2,412,731) (52,410,139) A. Governmental Activities Machinery and equipment (13,224,362) (773,342) (13,997,704) Following is a summary of governmental activities long-term debt transactions during the fiscal year Infrastructure (100,885,248) (4,664,948) (105,550,196) ended June 30, 2018: Total accumulated depreciation (164,107,018) (7,851,021) (171,958,039) Capital asset being depreciated, net 136,918,776 (7,851,021) 20,152,901 149,220,656 Balance Balance Due Within Due in More Business-type activity capital assets, net $176,253,972 $8,564,190 $184,818,162 July 01, 2017 Additions (A) Retirements (B) June 30, 2018 One Year than One Year Bonds payable $266,333,299 $5,560,256 ($10,206,346) $261,687,209 $11,175,000 $250,512,209 Loans payable 1,993,820 (149,045) 1,844,775 557,498 1,287,277 Capital leases 6,872,843 2,687,645 (909,648) 8,650,840 1,010,501 7,640,339 Included in buildings and improvements is the Richmond Housing Authority’s Hacienda Development with a net book value of $8,038,038 at June 30, 2018 that was deemed uninhabitable in fiscal year 2013. Total $275,199,962 $8,247,901 ($11,265,039) $272,182,824 $12,742,999 $259,439,825 The Hacienda property is still uninhabitable. However, the Housing Authority is working to find sources to fund the rehabilitation of the property, including funding from the U.S. Department of Housing and (A) Additions include bonds payable bond accretion for capital appreciation bonds totaling $5,560,256, and a new capital lease in the amount of $2,687,645. (B) Retirements of bonds payable include principal retirements in the amount of $10,143,000 and amortization of bond premiums in the amount of $63,346. Urban Development. The City and Housing Authority staff believe the impairment of the capital asset to be temporary and no provision for impairment has been recorded in the financial statements. Bonds Payable Business-type activities depreciation expenses for capital assets allocated to each program for the year ended June 30, 2018 were as follows: Bonds payable at June 30, 2018 consisted of the following:

Business-Type Activities Richmond Housing Authority $1,637,570 Net Port of Richmond 3,775,336 Pension Obligation Bonds - 1999 Series A $6,490,000 Municipal Sewer 2,301,596 Pension Funding Bond Series 2005 143,955,289 Richmond Marina 85,563 JPFA Lease Revenue Refunding Bonds - 2009 81,585,000 Storm Sewer 45,088 JPFA Lease Revenue Bonds - 2016 29,656,920 Cable TV 5,868 Total $261,687,209 Total Business-Type Activities $7,851,021

68 69 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

1999 Series A City of Richmond Taxable Limited Obligation Pension Bonds – Original Issue Credit Adjustment - The Bonds were issued on November 1, 2005 in a private placement at the initial $36,280,000 interest rates. Included in the Indenture were provisions which adjust the initial interest rates on each series based on the City’s meeting certain conditions. As a result of the City issuing its June 30, 2005 The bonds were issued to fund a portion of the unfunded accrued actuarial liability in the City’s pension financial statements and receiving an upgraded credit rating of A3 by Moody’s by May 1, 2006, the initial plans together with the prepayment of certain pension benefit costs of the Beneficiaries and to pay the interest rates were reduced by 1/10th of one percent. costs of issuance associated with the issuance of the bonds. Interest rates vary from 6.37% to a maximum of 7.39% and are payable semiannually on February 1, and August 1. The term bonds consist of Current Interest Bonds – The Series 2005A Bonds were fully repaid during fiscal year 2015. $8,960,000 due August 1, 2020 with an interest rate of 7.57% and $3,435,000 due August 1, 2029 with an interest rate of 7.62%. The bonds are payable from certain pension tax override revenues received by the Capital Appreciation Bonds - The Series 2005B-1 Bonds and 2005B-2 Bonds are capital appreciation City from a special tax pursuant to City Council Ordinance 9-99 adopted by the City Council on March bonds, which means no interest is paid until the Adjusted Maturity Value is reached on the Full Accretion 30, 1999. Principal and interest paid for the current fiscal year and total pension tax override revenues Date. Capital appreciation bonds are issued at a deep discount which then “accretes” over time. The were $2,070,543 and $9,075,692, respectively. discount on these bonds represented as the effective interest rate on each series is shown above.

The annual debt service requirements on the bonds are as follows: Mandatory Index Rate Conversion – On the respective Full Accretion Date, the Series 2005B-1 or 2005B- 2 Bonds convert from Capital Appreciation Bonds to Index Rate Bonds. From that date forward, the For the Years Bonds bear interest at a rate based on the 1 month LIBOR index plus 1.4%. This rate fluctuates according Ending June 30, Principal Interest Total to the market conditions and is limited to 17 percent per year. Following the applicable Full Accretion Date, interest on the converted bond series is due semiannually each February 1 and August 1. The Series 2019 $1,375,000 $440,967 $1,815,967 2005B-1 Bonds are due in annual installments from 2014 to 2023 ranging from $4,468,000 to 2020 885,000 355,426 1,240,426 $11,593,000. The 2005B-2 Bonds are due in annual installments from 2024 to 2034 ranging from 2021 795,000 291,838 1,086,838 $6,466,000 to $18,538,000. 2022 710,000 234,696 944,696 2023 620,000 184,023 804,023 Optional Auction Rate Conversion – On the respective Full Accretion Date, the 2005B-1 and the 2005B-2 2024-2028 1,885,000 381,954 2,266,954 Bonds may be converted to Auction Rate Bonds provided that certain conversion requirements are met. Auction rates fluctuate according to the market conditions and is limited to a maximum 17 percent per 2029-2030 220,000 14,099 234,099 year and a minimum of 80 percent of the LIBOR index rate. The Series 2005B-1 Bonds did not convert Total $6,490,000 $1,903,003 $8,393,003 to auction rate bonds, and were instead converted to index rate bonds, as discussed above.

2005 Taxable Pension Funding Bonds – Original Issue $114,995,133 Swap Agreements - The City entered into two interest rate swap agreements related to the 2005B-1 and 2005B-2 Bonds. The interest rate swap related to the 2005B-1 Bonds became effective August 1, 2013 These Bonds were issued to prepay the unfunded liability of the Miscellaneous and Safety pension plans while the 2005B-2 Bonds does not become effective until August 1, 2023, in the same amount as the provided through the California Public Employees’ Retirement System (See Note 10). The Bonds consist outstanding principal balances of the Bonds on that date. The combination of the variable rate bonds and a of three series as shown below: floating swap rate will create synthetic fixed-rate debt for the City. The synthetic fixed rate for the 2005B-1 Bonds was 6.850% at June 30, 2018. Because neither the variable rate nor the swap rates are Index Rate Conversion Data effective for the 2005B-2 Bonds as of June 30, 2018 the initial bond interest rates discussed above are Less: Adjusted used for disclosure purposes. Initial Credit Adjusted Original Full Subsequent Adjusted Interest Adjust- Interest Maturity Principal Accretion Interest Maturity Bond Type & Series Rate ment Rate Date Amount Date Rate Value Current Interest - 2005A 5.9350% -0.1000% 5.8350% 8/1/13 $26,530,000 n/a n/a n/a

Convertible Auction Rate Securities, Capital Appreciation Bonds - 2005B-1 6.2550% -0.1000% 6.1550% 8/1/23 47,061,960 8/1/13 1 month LIBOR + 1.4% $53,745,000 2005B-2 6.5650% -0.1000% 6.4650% 8/1/34 41,403,173 8/1/23 1 month LIBOR + 1.4% 127,968,000

$114,995,133 $181,713,000

70 71 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

At June 30, 2018, the Bonds consisted of the following: Richmond Joint Powers Financing Authority Lease Revenue Refunding Bonds, Series 2009 – Original Issue - $89,795,000 Unamortized On November 10, 2009, the Authority issued Series 2009 Lease Revenue Refunding Bonds in the Accretion/ Premium amount of $89,795,000. The proceeds from the Bonds were used to refund and retire the outstanding Maturity Value Amortization (Discount) Net principal amount of the Authority’s 2007 Lease Revenue Bonds. The 2007 Bonds were used to finance a Capital appreciation bonds $181,713,000 $5,560,256 ($43,317,967) $143,955,289 portion of the costs of the new Civic Center Project, and to refund a portion of the 1995A Joint Powers Financing Authority Revenue Refunding Bonds and the remaining principal amount of the 2001A Joint Powers Financing Authority Lease Revenue Bonds. The 2007 Bonds were also used to refund the The annual debt service requirements are as follows: remaining 1996 Port Terminal Lease Revenue Bonds. The 1995 A Bonds were called in November 2007 and the 2001 A Bonds were called in February 2011. For the Years Ending June 30, Principal Interest Total The Series 2009 Bonds in the principal amount of $81,585,000 have been recorded as governmental 2019 $7,720,000 $7,635,603 $15,355,603 activities debt, and the business-type activities portion was fully repaid in fiscal year 2016.

2020 8,366,000 7,066,210 15,432,210 The Bonds bear interest rates that range from 3.50% to 5.875%. Principal payments are due annually on 2021 9,458,000 6,424,561 15,882,561 August 1 through 2038 and semi-annual interest payments are due August 1 and February 1 commencing 2022 10,302,000 5,723,682 16,025,682 on February 1, 2010. 2023 11,593,000 4,936,920 16,529,920 In connection with the issuance of the 2007 Lease Revenue Bonds, the Authority entered into a swap 2024-2028 36,201,000 19,858,343 56,059,343 agreement for $101,420,000, the entire amount of the Bonds. On November 10, 2009, in connection with 2029-2033 62,177,000 11,318,237 73,495,237 the issuance of the Series 2009 Bonds, the Authority terminated the original swap agreement and entered 2034-2035 35,896,000 705,796 36,601,796 into an amended swap agreement effective December 1, 2009 for $85,360,000. The amended agreement Total $181,713,000 $63,669,352 $245,382,352 required the Authority to make and receive payments based on variable interest rates. The Authority made payments based on a variable interest rate equal to 100% of SIFMA plus a fixed percentage of

0.56% and the Authority received variable rate interest payments equal to 68% of 1-month LIBOR from the swap counterparty. Floating rate payments were due semi-annually on August 1 and February 1 commencing on February 1, 2010.

On February 1, 2016, the interest rate swap agreement related to the 2009 Lease Revenue Refunding Bonds was terminated with the issuance of the Series 2016 Lease Revenue Bonds discussed below.

The annual debt service requirements on the Series 2009 Bonds are as follows:

For the Years Ending June 30, Principal Interest Total 2019 $2,080,000 $4,627,238 $6,707,238 2020 2,190,000 4,523,088 6,713,088 2021 2,315,000 4,410,463 6,725,463 2022 2,445,000 4,291,463 6,736,463 2023 2,580,000 4,156,163 6,736,163 2024-2028 15,550,000 18,283,876 33,833,876 2029-2033 22,550,000 12,904,672 35,454,672 2034-2038 31,875,000 4,915,172 36,790,172 Total $81,585,000 $58,112,135 $139,697,135

72 73 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Richmond Joint Powers Financing Authority Lease Revenue Bonds, Series 2016 – Original Issue - Interest Rate Swap and Swaption Agreements $28,390,000 The City entered into an interest swap agreement in connection with the 2005B-1 Taxable Pension On February 1, 2016, the Authority issued Series 2016 Lease Revenue Bonds in the amount of Funding Bonds. The transaction allows the City to create a synthetic fixed rate or a synthetic variable rate $28,390,000. The proceeds from the Bonds were used to pay the obligations of the City related to the on the Bonds, protecting it against increases and decreases in short-term interest rates. The various risks termination of the interest rate swap agreement and the option on swap agreement (swaption) related to associated with the swap agreements are disclosed below. For the swap agreement pertaining to the the Authority’s Series 2009 Lease Revenue Refunding Bonds and to pay the costs associated with the 2005B-2 Taxable Pension Funding Bonds, the disclosure is included below, but the swap agreement does issuance of the Series 2016 Bonds. On February 3, 2016 the interest rate swap agreement and the not become effective until August 1, 2023. swaption related to the Series 2009 Bonds were terminated with a swap termination payment of $28,554,000. On May 13, 2015, Moody’s Investor Services (“Moody’s”) downgraded the City’s issuer rating from “A1” to “Baa1” and the rating on its 1999 Taxable Limited Obligation Pension Bonds from “A2” to The Bonds bear interest rates of 4.00% to 5.50%. Principal payments are due annually on November 1 “Baa2”. In addition, the City and its Wastewater Enterprise bonds were placed under review for possible through 2037 and semi-annual interest payments are due May 1 and November 1 commencing on May 1, downgrades. On August 4, 2015, Moody’s further downgraded the City’s issuer rating from “Baa1” to 2016. “Ba1” and its rating on the City’s Taxable Pension Obligation Bonds and 1999 Taxable Limited Obligation Pension Bonds (“POB’s) from “Baa2”. In addition, Moody’s downgraded its rating on the At June 30, 2018, the 2016 Bonds consisted of the following: City’s Wastewater Revenue Bonds, Series 2006A to “Baa2” from “A2”. On September 1, 2015, Standard and Poor’s Rating Services (“S&P”) lowered the City’s Issuer Credit Rating from “AA-” to “BBB+” Bonds outstanding $28,390,000 placing the City on CreditWatch. Other credit ratings downgrades included S&P’s assigned underlying Unamortized premium 1,266,920 rating (SPUR) for the Wastewater Enterprise Fund that was lowered from “A+” to “BBB”.

Total $29,656,920 Moody’s downgrade of the City’s issuer rating to “Ba1” resulted in allowing the counterparty, JPMorgan Chase Bank, NA (“JPM”) to declare an Additional Termination Event (ATE) with the interest rate swaps

the City entered in conjunction with the 2005 Taxable POBs (2007 Swaps). This means that JPM could The annual debt service requirements are as follows: exercise a right to terminate the 2007 Swaps and demand immediate payment of an approximately $31.5

million settlement amount that represented the present value of the City’s expected future performance For the Years obligations under the 2007 Swaps at the time of the ATE. The City entered into a restructuring of certain Ending June 30, Principal Interest Total of its obligations through the issuance by the Richmond Joint Powers Financing Authority of Lease 2019 $1,343,375 $1,343,375 Revenue Bonds Series 2016A (tax-exempt) to fund the cost of terminating the Civic Center Swaps 2020 $235,000 1,337,206 1,572,206 relating to the Richmond Joint Powers Financing Authority Series 2009 Civic Center Lease Revenue 2021 1,015,000 1,304,394 2,319,394 Bonds held by Royal Bank of Canada (RBC). RBC simultaneously entered into a novation of the 2007 2022 1,080,000 1,248,050 2,328,050 Swaps with JPM. By terminating the Civic Center Swaps, the City reduced RBC’s credit exposure to the City sufficiently to allow RBC to accept the additional credit exposure associated with stepping into 2023 1,165,000 1,186,313 2,351,313 JPM’s position in the 2007 swaps through novation. Contemporaneous with the novation from JPM to 2024-2028 7,170,000 4,830,877 12,000,877 RBC, RBC and the City amended and restated the 2007 Swaps, including eliminating the existence of the 2029-2033 8,775,000 2,733,513 11,508,513 ATE by removing reference to a Moody’s rating in the ATE provisions, reducing the Standard & Poor’s 2034-2038 8,950,000 888,597 9,838,597 rating threshold for a future ATE to BBB- from BBB and providing a mandatory early termination of the Total $28,390,000 $14,872,325 $43,262,325 2007 Swaps in 2023. The early termination will require the City to either refund or restructure the 2007 Swap at that date if a termination payment is due at the time. In addition, terminating the Civic Center Swaps eliminated the risk of an ATE with respect to the Civic Center Swaps, which require the City to maintain its Issuer Credit Rating at the current level of BBB+ to avoid an ATE.

74 75 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Terms. The terms, including the counterparty credit ratings of the outstanding swaps, as of June 30, As of June 30, 2018, the fair value for the each of the outstanding swaps was in favor of the respective 2018, are included below. The swap agreements contain scheduled reductions to the outstanding notional counterparties. The fair value represents the maximum loss that would be recognized at the reporting date amount on an annual basis. if the counterparty failed to perform as contracted. The City has accounted for the change in fair value of each of the ineffective hedges as noted below: Pay-Fixed, Receive-Variable Swap Agreements Changes in Fair Value Fair value at June 30, 2018 For the following Pay-Fixed, Receive-Variable swap agreements, the City owes interest calculated at a Classification Amount Classification Amount fixed rate to the counterparty of the swaps. In return, the counterparty owes the City interest based on a Governmental Activities

variable rate that approximates the rate required by the Bonds. Debt principal is not exchanged; it is only Pay-Fixed, Receive-Variable the basis on which the swap receipts and payments are calculated. 2005B-1 Taxable Pension Funding Bonds Investment revenue $3,414,700 Investment ($4,128,800) 2005B-2 Taxable Pension Funding Bonds Investment revenue 2,585,200 Investment (18,811,000) ($22,939,800) Pay-Fixed, Receive-Variable Totals $5,999,900 Outstanding Long-Term Fixed Variable Notional Effective Credit Rating Rate Rate Fair Value at Termination Credit risk. The fair values of the swaps represent the City’s credit exposure to the counterparties. As of Amount Date Counterparty (S&P/Moody's/Fitch) Paid Received June 30, 2018 Date June 30, 2018, the City was not exposed to credit risk on the outstanding swaps because the swaps had 2005B-1 Taxable Pension Funding Bonds negative fair values. However, if interest rates change and the fair value of the swaps were to become positive, the City would be exposed to credit risk. Royal Bank of 100% of USD- 1 $53,753,789 8/1/2013 Canada AA-/Aa2/AA 5.580% Month LIBOR ($4,128,800) 8/1/2023 Interest rate risk. The City will be exposed to interest rate risk for the Pay-Fixed, Receive-Variable 2005B-2 Taxable Pension Funding Bonds swaps only if the counterparty to the swaps defaults or if the swaps are terminated. Royal Bank of 100% of USD-1 $127,990,254 8/1/2023 Canada AA-/Aa2/AA 5.665% Month LIBOR ($18,811,000) 8/1/2034 Basis risk. Basis risk is the risk that the interest rate paid by the City on the underlying variable rate bonds to the bondholders temporarily differs from the variable swap rate received from the counterparty. Fair value. Fair value of the swaps takes into consideration the prevailing interest rate environment, the The City bears basis risk on the Pay-Fixed, Receive-Variable swaps. The swaps have basis risk since the specific terms and conditions of each transaction and any upfront payments that may have been received. City receives a percentage of the LIBOR Index to offset the actual variable bond rate the City pays on the Fair value was estimated using the zero-coupon discounting method. This method calculates the future underlying Bonds. The City is exposed to basis risk should the floating rate that it receives on a swap be payments required by the swaps, assuming that the current forward rates implied by the LIBOR swap less than the actual variable rate the City pays on the bonds. Depending on the magnitude and duration yield curve are the market’s best estimate of future spot interest rates. These payments are then of any basis risk shortfall, the expected cost of the basis risk may vary. discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swap. The swaps are classified in Level 2 of the A portion of this basis risk is tax risk. The City is exposed to tax risk when the relationship between the fair value hierarchy, using a market approach that considers observable swap rates commonly quoted for taxable LIBOR based swap and tax-exempt variable rate bond changes as a result of a reduction in the full term of the swaps. federal and state income tax rates. Should the relationship between LIBOR and the underlying tax- exempt variable rate bonds converge the City is exposed to this basis risk.

Termination risk. The City may terminate if the other party fails to perform under the terms of the contract. The City will be exposed to variable rates if the counterparties to the swap contracts default or if the swap contracts are terminated. A termination of the swap contracts may also result in the City’s making or receiving a termination payment based on market interest rates at the time of the termination. If at the time of termination the swaps have a negative fair value, the City would be liable to the counterparty for a payment equal to the swap’s fair value.

76 77 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Swap payments and associated debt. Using rates as of June 30, 2018, debt service requirements of the CalTrans Home Loans – Original Amount $1,467,160 City’s outstanding fixed rate 2005 Taxable Pension Funding Bonds and net swap payments, assuming current interest rates remain the same for their term, are as follows. The 2005B-2 Bond is not included in The City has a loan from CalTrans which it used to purchase 43 homes in 1991. These homes were the table, because the swap is not effective until August 1, 2023. As rates vary, net swap payments will resold to Richmond Neighborhood Housing Services in order to provide housing to very low, and low vary. and moderate income persons. Interest on the loan is computed annually based upon the average rate of return by the Pooled Money Investment Board for the past five years. Payment of principal and interest 2005 Taxable Pension Funding Bonds for 16 of the homes is made in quarterly payments over a 40 year period. Payment of principal and interest for 27 of the homes is deferred at least for the period that each home was committed by CalTrans For the Years Variable-Rate Bonds Interest Rate to be used as affordable housing, which varies from seven to ten years. When the payments mature for the 27 homes, the City has the option to either make the full payment of principal and interest to Ending June 30, Principal Interest Swap, Net (A) Total CalTrans or execute a promissory note to pay the balance in quarterly payments over thirty to thirty-three 2019 $7,720,000 $6,057,087 $1,578,516 $15,355,603 years. 2020 8,366,000 5,768,787 1,297,423 15,432,210 2021 9,458,000 5,443,902 980,659 15,882,561 California Energy Commission Phase 1 – Original Amount $621,558 2022 10,302,000 5,089,027 634,655 16,025,682 2023 11,593,000 4,690,667 246,253 16,529,920 On April 22, 2013, the City entered into a loan agreement with the California Energy Commission in the 2024-2028 36,201,000 19,840,211 18,132 56,059,343 amount of $621,558. The purpose of the loan is to provide funding for the replacement of street lighting 2029-2033 62,177,000 11,318,237 73,495,237 with new LED lights. The loan bears a 3% interest rate and is due in semi-annual payments in December 2034-2035 35,896,000 705,796 36,601,796 and June through December 2025. Total $181,713,000 $58,913,714 $4,755,638 $245,382,352 The annual debt service requirements on the loan are as follows:

(A) Includes only the 2005 B-1, because the 2005 B-2 is not effective For the Years until August 1, 2023. Ending June 30, Principal Interest Total

Loans Payable 2019 $48,888 $11,778 $60,666 2020 50,338 10,328 60,666 Loans payable at June 30, 2018 consisted of the following: 2021 51,886 8,779 60,665 2022 53,455 7,211 60,666 City Loans Payable 2023 55,071 5,595 60,666 2024-2026 145,055 6,605 151,660 CalTrans Home Loans $428,886 Total $404,693 $50,296 $454,989 California Energy Commission Loan #1 404,693 California Energy Commission Loan #2 1,011,196 $1,844,775

78 79 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

California Energy Commission Phase 2 – Original Amount $1,239,036 The annual debt service requirements on the capital lease are as follows:

During fiscal year 2015, the City entered into a loan agreement with the California Energy Commission in For the Years the amount of $1,239,036. The purpose of the loan is to provide funding for the replacement of street Ending June 30, Principal Interest Total lighting with new LED lights. The loan bears interest at 1% and is due in semi-annual payments in 2019 $70,591 $41,054 $111,645 December and June through June 2030. 2020 72,531 36,228 108,759 The annual debt service requirements on the loan are as follows: 2021 74,525 31,269 105,794 2022 76,573 26,175 102,748 For the Years 2023 78,678 20,940 99,618 Ending June 30, Principal Interest Total 2024-2026 249,251 29,952 279,203 2019 $79,724 $9,914 $89,638 Total $622,149 $185,618 $807,767 2020 80,499 9,139 89,638 2021 81,331 8,308 89,639 Richmond Joint Powers Financing Authority Recovery Zone Economic Development Lease – 2022 82,146 7,492 89,638 Original Amount $1,316,000 2023 82,969 6,669 89,638 2024-2028 427,470 20,721 448,191 On December 1, 2010 the Authority entered into a capital lease with Bank of America in the amount of 2029-2030 177,057 2,220 179,277 $1,316,000 to finance the improvements to three of the City’s fire stations and a senior center. The City Total $1,011,196 $64,463 $1,075,659 agreed to lease the three fire stations to the Authority in exchange for lease payments in the amount of the debt. The Authority received the lease proceeds under an allocation of the National Recovery Zone Economic Development Bonds under the American Recovery and Reinvestment Act of 2009, which Capital Leases includes a direct subsidy from the United States Treasury for the interest payable on the Bonds. The lease subsidy will be payable on or about the date that the Authority makes its debt service payments and is Capital leases payable at June 30, 2018 consisted of the following: equal to 45% of the interest payable on the lease upon filing of a request by the Authority. The total subsidy received in fiscal year 2018 was $22,087. The lease bears interest at a rate of 6.50% and Qualified Energy Conservation Lease $622,149 principal and interest payments on the lease are due semi-annually each June 15 and December 15, JPFA Recovery Zone Economic Development Lease 744,414 commencing on June 15, 2011, through 2026. Holman Capital Corporation Lease #3 71,139 Holman Capital Corporation Lease #4 1,058,325 The annual debt service requirements on the capital lease are as follows: Street Light Capital Lease 3,467,168 Holman Capital Corporation Lease #5 2,687,645 For the Years Total $8,650,840 Ending June 30, Principal Interest Total 2019 $88,203 $46,966 $135,169 Qualified Energy Conservation Lease – Original Amount $1,052,526 2020 91,385 41,182 132,567 2021 94,681 35,189 129,870 On December 22, 2010 the City entered into a capital lease with Bank of America in the amount of 2022 98,096 28,979 127,075 $1,052,526 to finance the purchase and installation of energy conservation equipment at various City- owned buildings. The City received an allocation of the national Qualified Energy Conservation Bond 2023 101,634 22,546 124,180 which includes a direct subsidy from the United States Treasury for the interest payable on the bonds 2024-2026 270,415 26,677 297,092 under the Hiring Incentives to Restore Employment Act (HIRE Act). The subsidy will be payable on or Total $744,414 $201,539 $945,953 about the date that the City makes its debt service payments and is equal to 59.79% of the interest payable on the lease. The subsidy received in fiscal year 2018 was $25,550. The lease bears interest at a rate of 6.79% and principal and interest payments are due semi-annually each June 15 and December 15 commencing on December 15, 2011 through June 15, 2026.

80 81 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Holman Capital Corporation Lease #2 - Equipment - Original Amount $2,854,454 Street Light Capital Lease - Original Amount $4,641,936

On June 1, 2012, the City entered into a capital lease agreement with Holman Capital Corporation to On July 31, 2013 the City entered into a lease agreement with Bank of America in the amount of refinance two SunTrust leases for the acquisition of street sweeping vehicles and trucks, fire vehicles and $4,641,936 to finance the purchase of streetlights and the associated upgrade costs. The lease bears an related equipment and various other vehicles. The lease bears interest rates that range from 2.21 % to interest rate of 2.55%. Principal and interest payments on the lease are due semi-annually on each 3.06%. Principal and interest payments on the lease are due semi-annually on each June 26 and December October 30 and April 30 commencing on April 30, 2014 through October 30, 2026. 26 commencing on June 26, 2012 through 2017. The final lease payment was made during fiscal year 2018. The annual debt service requirements on the capital lease are as follows:

Holman Capital Corporation Lease #3 – Mall Directional Signs - Original Amount $502,500 For the Years Ending June 30, Principal Interest Total On June 1, 2012, the City entered into a capital lease agreement with Holman Capital Corporation to finance the purchase of mall directional signs. The lease bears an interest rate of 3.35%. Principal and 2019 $352,159 $86,211 $438,370 interest payments on the lease are due semi-annually on each June 26 and December 26 commencing on 2020 370,787 77,114 447,901 June 26, 2012 through 2019. 2021 390,184 67,538 457,722 2022 410,373 57,461 467,834 The annual debt service requirements on the capital lease are as follows: 2023 431,386 46,865 478,251 2024-2027 1,512,279 72,553 1,584,832 For the Years Total $3,467,168 $407,742 $3,874,910 Ending June 30, Principal Interest Total

2019 $71,139 $1,602 $72,741 Holman Capital Corporation Lease #5 – Fire Apparatus Equipment Lease - Original Amount $2,687,645 Holman Capital Corporation Lease #4 – West Contra Costa Family Justice Center - Original Amount $2,000,000 On May 17, 2018 the City entered into a lease agreement with Holman Capital Corporation in the amount of $2,687,645 to finance the purchase of one Spartan Ladder Truck and two Spartan Pumper Trucks. The On November 1, 2012 the City entered into a lease agreement with Holman Capital Corporation in the lease bears an interest rate of 3.91%. Principal and interest payments on the lease are due quarterly on amount of $2,000,000 to finance improvements to the City’s West Contra Costa Family Justice Center. each August 17, November 17, February 17, and May 17 commencing on August 17, 2018 through May The lease bears an interest rate of 3.17%. Principal and interest payments on the lease are due semi- 17, 2028. annually on each July 14 and January 14 commencing on July 14, 2013 through January 14, 2023. The annual debt service requirements on the capital lease are as follows: The annual debt service requirements on the capital lease are as follows: For the Years For the Years Ending June 30, Principal Interest Total Ending June 30, Principal Interest Total 2019 $224,192 $101,827 $326,019 2019 $204,217 $31,943 $236,160 2020 233,088 92,931 326,019 2020 210,743 25,419 236,162 2021 217,476 18,684 236,160 2021 242,336 83,683 326,019 2022 224,424 11,736 236,160 2022 251,951 74,068 326,019 2023 201,465 4,564 206,029 2023 261,946 64,070 326,016 Total $1,058,325 $92,346 $1,150,671 2024-2028 1,474,132 155,959 1,630,091 Total $2,687,645 $572,538 $3,260,183

82 83 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

B. Business-Type Activities Richmond Variable Rate Wastewater Revenue Refunding Bonds, Series 2008 A – Original Issue $33,015,000 The following is a summary of long-term debt of business-type activities during the fiscal year ended June 30, 2018: On October 17, 2008 the City issued Series 2008A Wastewater Revenue Refunding Bonds in the amount of $33,015,000. The proceeds from the Bonds were used to refund the City’s 2006B Wastewater Balance Balance Due Within Due in More Revenue Bonds. The 2008A Bonds were issued as variable rate Bonds. The rate fluctuates according to July 01, 2017 Additions (A) Retirements (B) June 30, 2018 One Year than One Year Bonds payable $118,902,238 $39,435,634 ($13,051,393) $145,286,479 $5,705,000 $139,581,479 the market conditions, but is capped at 12%. Along with the issuance, the City entered into an Notes and Loans payable 3,401,553 (85,245) 3,316,308 89,081 3,227,227 irrevocable, direct-pay letter of credit issued by Union Bank of California in order to remarket the bonds Total $122,303,791 $39,435,634 ($13,136,638) $148,602,787 $5,794,081 $142,808,706 at lower interest rates. The Barclays Bank PLC letter of credit was renewed in July 2017 and is valid through July 10, 2020. The City originally entered into a 31-year interest rate swap agreement for the (A) Additions include the issuance of new bonds in the amount of $33,530,000 and a bond premium in the amount of $5,905,634. (B) Retirements of bonds payable include principal retirements in the amount of $12,585,000 and amortization of bond premiums and discounts in the entire amount of the 2006B Bonds, and the City continued this interest rate swap agreement after the amount of $466,393. redemption of the 2006B Bonds, and the 2008A Bonds are associated with the interest rate swap agreement, but the notional amount of the swap is based on the 2006B Bonds. The combination of the variable rate bonds and a floating rate swap creates a synthetic fixed-rate debt for the City. The synthetic Bonds payable at June 30, 2018 consisted of the following: fixed rate for the Bonds was 3.265% at June 30, 2018.

Wastewater Refunding Revenue Bonds 2008A $32,730,327 At June 30, 2018, the Bonds consisted of the following: 2009A Point Potrero Lease Revenue Bonds 26,711,948 2009B Point Potrero Lease Revenue Bonds 6,875,759 Bonds outstanding $32,875,000 Wastewater Revenue Bonds Series 2010B 39,713,273 Wastewater Revenue Bonds Series 2017A 39,255,172 Unamortized discount (144,673) Total $145,286,479 Net $32,730,327

Wastewater Revenue Refunding Bonds Series 2006A and 2006B – Original Issue $48,830,000 The annual debt service requirements on the Bonds are as follows:

On October 17, 2006 the City issued $16,570,000 of Wastewater Revenue Bonds, Series 2006A and For the Years $32,260,000 of Wastewater Revenue Bonds, Series 2006B to refund the remaining $38,516,264 principal Ending June 30, Principal Interest Total amount of the Wastewater Revenue Bonds, Series 1999 and to fund certain capital costs of the City’s 2019 $20,000 $1,427,913 $1,447,913 Wastewater Enterprise. Net proceeds were used to purchase U.S. government securities placed in an irrevocable trust to provide all the future debt service payments for the 1999 Wastewater Bonds. The 2020 20,000 1,427,509 1,447,509 outstanding defeased bonds were called during the fiscal year ended June 30, 2010. During the fiscal year 2021 20,000 1,427,800 1,447,800 ended June 30, 2009, the City issued $33,015,000 of Wastewater Revenue Refunding Bonds, Series 2008A 2022 20,000 1,426,654 1,446,654 to refund the 2006B Bonds. Principal and interest payments were due semi-annually on February 1 and 2023 25,000 1,426,232 1,451,232 August 1 of each year through August 2022 for the Series 2006A bonds. During the fiscal year ended June 2024-2028 8,870,000 6,069,850 14,939,850 30, 2018, the City issued $33,530,000 of Wastewater Revenue Bonds, Series 2017A (described below) to 2029-2033 10,770,000 3,911,845 14,681,845 refund the 2006A Bonds. 2034-2038 13,090,000 1,288,466 14,378,466 2039 40,000 306 40,306 Total $32,875,000 $18,406,575 $51,281,575

84 85 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Interest Rate Swap Agreement As of June 30, 2018, the fair value for the outstanding swap was in favor of the respective counterparty. The fair value represents the maximum loss that would be recognized at the reporting date if the On November 19, 2009, the City terminated the swap agreement associated with the 2006B Wastewater counterparty failed to perform as contracted. The City has accounted for the change in fair value of the Revenue Refunding Bonds discussed above by using the proceeds from a swap agreement that is based ineffective hedge as noted below: on the $32,260,000 notional amount of the 2006B Bonds. In connection with the 2009 swap agreement, the City received an up-front payment in the amount of $4,431,618 that was used to make the termination Changes in Fair Value Fair value at June 30, 2018 Classification Amount Classification Amount payment on the prior swap agreement. The fixed rate payments to the counterparty will be due semi- Business-Type Activities annually on August 1 and February 1, commencing February 1, 2010. The variable payments from the counterparty will be due on a monthly basis on the last business day of each month commencing Pay-Fixed, Receive-Variable December 31, 2009. The transaction allows the City to create a synthetic fixed rate on the 2008A Bonds, 2006B Wastewater Bonds Investment revenue $2,036,200 Investment ($6,744,600) protecting it against increases in short-term interest rates. The terms, fair value and credit risk of the Credit risk. As of June 30, 2018, the City was not exposed to credit risk on the outstanding swap because swap agreement are disclosed below. the swap had a negative fair value. However, if interest rates increase and the fair value of the swap was

to become positive, the City would be exposed to credit risk. The City will be exposed to interest rate Terms. The terms, including the counterparty credit rating of the outstanding 2006B Bonds swap, as of risk only if the counterparty to the swap defaults or if the swap is terminated. June 30, 2018, are included below. The swap agreement contains scheduled reductions to the outstanding

notional amount on an annual basis. Basis risk. Basis risk is the risk that the interest rate paid by the City on the underlying variable rate

bonds to the bondholders temporarily differs from the variable swap rate received from the counterparty. Outstanding Long-Term Fixed Variable Notional Effective Credit Rating Rate Rate Fair Value at Termination The City bears basis risk on the swap. The swap has basis risk since the City receives a percentage of the Amount Date Counterparty (S&P/Moody's/Fitch) Paid Received June 30, 2018 Date LIBOR Index to offset the actual variable bond rate the City pays on the underlying Bonds. The City is 63.42% of USD-1 exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable Month LIBOR Royal Bank of plus 22 basis rate the City pays on the bonds. Depending on the magnitude and duration of any basis risk shortfall, the $32,260,000 11/23/2009 Canada AA-/Aa2/AA 3.897% points ($6,744,600) 8/1/2037 expected cost of the basis risk may vary.

Based on the swap agreement, the City owes interest calculated at a fixed rate to the counterparty of the A portion of this basis risk is tax risk. The City is exposed to tax risk when the relationship between the swap. In return, the counterparty owes the City interest based on the variable rate that approximates the taxable LIBOR based swap and tax-exempt variable rate bond changes as a result of a reduction in rate required by the Bonds. Debt principal is not exchanged; the outstanding notional amount of the federal and state income tax rates. Should the relationship between LIBOR and the underlying tax- swap is the basis on which the swap receipts and payments are calculated. exempt variable rate bonds converge the City is exposed to this basis risk.

Fair value. Fair value of the swap takes into consideration the prevailing interest rate environment, the Termination risk. The City may terminate if the other party fails to perform under the terms of the specific terms and conditions of each transaction and any upfront payments that may have been received. contract. The City will be exposed to variable rates if the counterparty to the swap contract defaults or if Fair value was estimated using the zero-coupon discounting method. This method calculates the future the swap contract is terminated. A termination of the swap contract may also result in the City’s making payments required by the swap, assuming that the current forward rates implied by the LIBOR swap or receiving a termination payment based on market interest rates at the time of the termination. If at the yield curve are the market’s best estimate of future spot interest rates. These payments are then time of termination the swap has a negative fair value, the City would be liable to the counterparty for a discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate payment equal to the swap’s fair value. bond due on the date of each future net settlement on the swap. The swap is classified as Level 2 of the fair value hierarchy, using a market approach that considers observable swap rates commonly quoted for Rollover Risk. Rollover risk is the risk that the swap associated with a debt issue matures or may be the full term of the swap. terminated prior to the maturity of the associated debt. When the swap terminates or a termination option is exercised by the counterparty, the City will be re-exposed to the risks being hedged by the swap. The swap based on the 2006B Wastewater Bonds, associated with the 2008A Wastewater Revenue Bonds, exposes the City to rollover risk because the swap terminates on August 1, 2037 while the 2008A Wastewater Revenue Bonds mature on August 1, 2038.

86 87 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Swap payments and associated debt. Using rates as of June 30, 2018, debt service requirements of the The annual debt service requirements on the 2009A Bonds are as follows: City’s outstanding variable-rate Bonds and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap For the Years payments will vary. These payments below are included in the Debt Service Requirements above: Ending June 30, Principal Interest Total 2019 $1,676,875 $1,676,875 For the Years Variable-Rate Bonds Interest Rate 2020 1,676,875 1,676,875 Ending June 30, Principal Interest Swap, Net Total 2019 $20,000 $664,893 $763,020 $1,447,913 2021 $3,905,000 1,554,844 5,459,844 2020 20,000 664,489 763,020 1,447,509 2022 4,150,000 1,303,125 5,453,125 2021 20,000 664,780 763,020 1,447,800 2023 4,405,000 1,035,781 5,440,781 2022 20,000 663,634 763,020 1,446,654 2024-2025 14,370,000 1,054,375 15,424,375 2023 25,000 663,212 763,020 1,451,232 Total $26,830,000 $8,301,875 $35,131,875 2024-2028 8,870,000 2,858,945 3,210,905 14,939,850 2029-2033 10,770,000 1,864,037 2,047,808 14,681,845 At June 30, 2018 the Series 2009B Bonds consisted of: 2034-2038 13,090,000 654,351 634,115 14,378,466 2039 40,000 306 40,306 Bonds outstanding $6,920,000 Total $32,875,000 $8,698,647 $9,707,928 $51,281,575 Unamortized discount (44,241) Net $6,875,759 Richmond Joint Powers Financing Authority Point Potrero Lease Revenue Bonds, Series 2009A and 2009B – Original Issue Series 2009A ($26,830,000), Series 2009B ($20,820,000) The annual debt service requirements on the 2009B Bonds are as follows: On July 13, 2009, the Authority issued Series 2009A and Series 2009B Point Potrero Lease Revenue Bonds in the amounts of $26,830,000 and $20,820,000, respectively. The proceeds from the Bonds were For the Years used for the construction of an automobile warehousing and distribution facility, including rail Ending June 30, Principal Interest Total improvements, to be located at the Point Potrero Terminal at the Port of Richmond. The facility began 2019 $3,320,000 $441,419 $3,761,419 operations in April 2010. The Bonds bear interest rates that range from 6.25% to 8.50%. Principal 2020 3,600,000 151,031 3,751,031 payments are due annually on July 1 and semi-annual interest payments are due July 1 and January 1 commencing on January 1, 2010 through July 1, 2024 for the Series 2009A and through July 1, 2019 for Total $6,920,000 $592,450 $7,512,450 the Series 2009B Bonds.

At June 30, 2018 the Series 2009A Bonds consisted of:

Bonds outstanding $26,830,000 Unamortized discount (118,052) Net $26,711,948

88 89 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Richmond Wastewater Revenue Bonds Taxable Build America Bonds, Series 2010B– Original Issue Richmond Wastewater Revenue Bonds, Series 2017A– Original Issue $33,530,000 $41,125,000 On July 19, 2017 the City issued Series 2017A Wastewater Revenue Bonds in the amount of On October 7, 2010 the City issued Series 2010B Wastewater Revenue Bonds Taxable Build America $33,530,000. The proceeds from the Bonds were used to finance improvements to the City’s wastewater Bonds in the amount of $41,125,000. The proceeds of these Bonds were used to finance improvements to collection, treatment and disposal system and to refund all of the City’s outstanding Wastewater Revenue the City’s wastewater collection, treatment and disposal system. The taxable 2010B Bonds were sold as Refunding Bonds, Series 2006A. Principal payments are due annually on August 1. Interest rates on the “Build America Bonds” pursuant to the American Recovery and Reinvestment Act of 2009. The interest Bonds range from 2% to 5.25% and payments are due semiannually on August 1 and February 1 on Build America Bonds is not tax-exempt and therefore the bonds carry a higher interest rate. However, beginning February 1, 2018. The refunding resulted in an overall debt service savings of $565,625. The this higher interest rate will be offset by a subsidy payable by the United States Treasury equal to 35% of net present value of the debt service savings is called an economic gain and amounted to $522,953. The the interest payable on the Bonds. The subsidy will be payable on or about the date that the City makes bonds mature on August 1, 2047. its debt service payments and the total subsidy received in fiscal year 2018 was $797,193. Principal payments on the Bonds will be made annually on August 1. The Bonds bear interest of rates that range At June 30, 2018 the Series 2017A Bonds consisted of: from 3.757% to 6.461% and payments are due semiannually on August 1 and February 1 beginning February 1, 2011. The Bonds mature on August 1, 2040. Bonds outstanding $33,530,000 Unamortized premium 5,725,172 At June 30, 2018 the Series 2010B Bonds consisted of: Net $39,255,172

Bonds outstanding $40,010,000 The annual debt service requirements on the 2017A Bonds are as follows: Unamortized discount (296,727) Net $39,713,273 For the Years Ending June 30, Principal Interest Total The annual debt service requirements on the 2010B Bonds are as follows: 2019 $1,220,000 $1,650,950 $2,870,950

2020 1,255,000 1,613,650 2,868,650 For the Years 2021 1,305,000 1,562,450 2,867,450 Ending June 30, Principal Interest Total 2022 1,365,000 1,502,225 2,867,225 2019 $1,145,000 $2,397,359 $3,542,359 2020 1,175,000 2,347,247 3,522,247 2023 1,430,000 1,432,350 2,862,350 2021 1,210,000 2,293,638 3,503,638 2024-2028 6,983,000 6,983,000 2022 1,245,000 2,232,267 3,477,267 2029-2033 6,983,000 6,983,000 2034-2038 6,983,000 6,983,000 2023 1,285,000 2,164,033 3,449,033 2024-2028 7,145,000 9,686,273 16,831,273 2039-2043 7,415,000 6,511,875 13,926,875 2029-2033 8,670,000 7,284,135 15,954,135 2044-2048 19,540,000 2,671,987 22,211,987 2034-2038 10,630,000 4,198,034 14,828,034 Total $33,530,000 $37,894,487 $71,424,487 2039-2041 7,505,000 740,593 8,245,593 Total $40,010,000 $33,343,579 $73,353,579 Pledge of Wastewater Revenues

The City has pledged future wastewater customer revenues, net of specified operating expenses, to repay the 2008A, 2010B, and 2017A Bonds through 2048. The Municipal Sewer Enterprise Fund’s total principal and interest remaining to be paid on the bonds is $196,059,641. The Municipal Sewer Enterprise Fund’s principal and interest paid for the current year and total customer net revenues were $7,999,008 and $11,867,127, respectively.

90 91 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued) NOTE 7 – LONG-TERM DEBT OBLIGATIONS (Continued)

Notes and Loans Payable In fiscal year 2015, the City had advanced the $700,000 to the Richmond Housing Authority Enterprise Fund, however, in fiscal year 2016 that loan was assigned to RHA RAD Housing Partners L.P. as Notes and loans payable at June 30, 2018, consisted of the following: discussed in Note 5. Therefore, the Richmond Housing Authority Enterprise Fund now owes this amount to RHA RAD Housing Partners L.P. and the interfund advance was converted to long-term debt in fiscal California Department of Boating and Waterways $2,616,308 year 2016. RHA RAD Housing Partners L.P. Promissory Note 700,000 Total $3,316,308 C. Special Assessment Debt Without City Commitment

California Department of Boating and Waterways Special assessment districts have been established in various parts of the City to provide improvements to properties located in those districts. Properties in these districts are assessed for the cost of The City has three loan agreements with the California Department of Boating and Waterways for total improvements; these assessments are payable solely by property owners over the term of the debt issued borrowings of $9,427,000. Proceeds from the loans were used to finance marina construction projects. to finance these improvements. The City is not legally or morally obligated to pay these debts or be the The loans bear interest at rates ranging from 4.5% to 7.9% and are due in annual installments through purchaser of last resort of any foreclosed properties in these special assessment districts, nor is it August 2042. The total amount outstanding at June 30, 2018 was $2,616,308. obligated to advance City funds to repay these debts in the event of default by any of these districts. At June 30, 2018, the balances of these Districts’ outstanding debt were as follows: The annual debt service requirements on these loans are as follows: Richmond JPFA Reassessment Revenue Refunding Bonds, Series 2011A $1,530,000 For the Years Richmond JPFA Reassessment Revenue Refunding Bonds, Series 2016 (Country Club Vista) 7,435,000 Ending June 30, Principal Interest Total 2019 $89,081 $117,734 $206,815 D. Conduit Debt 2020 93,090 113,725 206,815 2021 97,279 109,536 206,815 The City has assisted private-sector entities by sponsoring their issuance of debt for purposes the City 2022 101,656 105,159 206,815 deems to be in the public interest. These debt issues are secured solely by the property financed by the 2023 106,231 100,584 206,815 debt. The City is not legally or morally obligated to pay these debts or be the purchaser of last resort of 2024-2028 607,310 426,765 1,034,075 any foreclosed properties secured by these debts, nor is it obligated to advance City funds to repay these 2029-2033 714,786 277,257 992,043 debts in the event of default by any of these issuers. At June 30, 2018, the balance of this issuers’ outstanding debt was as follows: 2034-2038 568,109 126,959 695,068 2039-2043 238,766 17,545 256,311 Richmond Community Foundation, Richmond Housing Rehabilitation Total $2,616,308 $1,395,264 $4,011,572 Program, Social Impact Bonds, Taxable Series 2015A $3,000,000

RHA RAD Housing Partners, LP Promissory Note

On December 17, 2014, the Housing Authority’s Component Unit, RHA Housing Corporation, entered into an agreement with the City and promised to pay a principal amount of $700,000, plus accrued interest. The proceeds of the Note were then loaned from RHA Housing Corporation to the Housing Authority to finance acquisitions and development of the properties undergoing rehabilitation work in conjunction with a RAD conversion (Friendship Manor/Triangle Court). On December 22, 2015, the official closing of the RAD conversion took place, at which time the Note was assigned to a newly created entity, RHA RAD Housing Partners, L.P. The Note payable to the City was assigned from RHA Corporation to RHA RAD Housing Partners, L.P. along with a note receivable from the Housing Authority. The principle balance shall bear 1% simple interest. The term of the Note shall expire fifty- five years after. The balance of the promissory note at June 30, 2018 was $700,000.

92 93 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 8 – UNAVAILABLE REVENUE AND UNEARNED REVENUE NOTE 9 – FUND BALANCES AND NET POSITION (Continued)

At June 30, 2018, the following unavailable revenues were recorded in the Fund Financial Statements B. Fund Balances because the funds were not available to finance expenditures of the current period: Governmental fund balances represent the net current assets of each fund. Net current assets generally Accounts represent a fund’s cash and receivables, less its liabilities. and Loans Grants The City’s fund balances are classified based on spending constraints imposed on the use of resources. Receivable Receivable Total For programs with multiple funding sources, the City prioritizes and expends funds in the following order: Restricted, Committed, Assigned, and Unassigned. Each category in the following hierarchy is General Fund $432,357 $125,753 $558,110 ranked according to the degree of spending constraint: Community Development and Loan Programs Special Revenue Fund 20,527,971 333,941 20,861,912 Nonspendable represents balances set aside to indicate items do not represent available, spendable Non-Major Governmental Funds 779,013 2,843,491 3,622,504 resources even though they are a component of assets. Fund balances required to be maintained intact, Total $21,739,341 $3,303,185 $25,042,526 such as Permanent Funds, and assets not expected to be converted to cash, such as prepaids, interfund advances and notes receivable are included. However, if proceeds realized from the sale or collection of At June 30, 2018, the following unearned revenues were recorded in the City-wide financial statements nonspendable assets are restricted, committed or assigned, then nonspendable amounts are required to be on the Statement of Net Position: presented as a component of the applicable category.

CAD Fees Developer Restricted fund balances have external restrictions imposed by creditors, grantors, contributors, laws, Enhancement Prepaid Rent Fees & Other Total regulations, or enabling legislation which requires the resources to be used only for a specific purpose.

General Fund $3,471,391 $602,466 $4,073,857 Committed fund balances have constraints imposed by formal action of the City Council which may be Non-Major Governmental Funds 2,895,537 715,620 3,611,157 altered only by the same formal action of the City Council. The highest level of formal action of the City Richmond Housing Authority Enterprise Fund 70,191 70,191 Council is an Ordinance. Port of Richmond Enterprise Fund 533,558 533,558

Municipal Sewer Enterprise Fund 36,280 36,280 Internal Service Funds $783,820 783,820 Assigned fund balances are amounts constrained by the City’s intent to be used for a specific purpose, but Total $783,820 $6,366,928 $1,958,115 $9,108,863 are neither restricted nor committed. Intent is expressed by the City Council or its designee, the Finance Director, and may be changed at the discretion of the City Council or its designee, during the budget approval process or via budget amendments in accordance with the City’s adopted budget policy. This NOTE 9 – FUND BALANCES AND NET POSITION category includes encumbrances; nonspendables, when it is the City’s intent to use proceeds or collections for a specific purpose, and residual fund balances, if any, of Special Revenue, Capital Projects A. Net Position and Debt Service Funds which have not been restricted or committed.

In the City-wide financial statements, Net Position is classified as follows: Unassigned fund balance represents residual amounts that have not been restricted, committed, or assigned. This includes the residual general fund balance and residual fund deficits, if any, of other Net Investment in Capital Assets – This amount consists of capital assets net of accumulated governmental funds. depreciation plus deferred outflows of resources associated with the refunding of related capital debt, reduced by outstanding debt that was used for the acquisition, construction, or improvement of these capital assets.

Restricted Net Position – This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. In addition, net position restricted for pension benefits are restricted as a result of enabling legislation.

Unrestricted Net Position – This amount is all net position that do not meet the definition of “net investment in capital assets” or “restricted net position.”

When an expense is incurred for purposes for which both restricted and unrestricted net position are available, the City’s policy is to apply restricted net position first.

94 95 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 9 – FUND BALANCES AND NET POSITION (Continued) NOTE 9 – FUND BALANCES AND NET POSITION (Continued)

Detailed classifications of the City’s fund balances, as of June 30, 2018, are below: C. Contingency Reserve Policy

Community In fiscal year 2016, the City Council updated the fund balance policy to require the City to maintain a Development year-end contingency reserve balance of a minimum of 15% of the next year’s budgeted General Fund and Loan Programs Other expenditures. This is the minimum needed to maintain the City’s creditworthiness and to adequately General Special Revenue Governmental provide for economic and legislative uncertainties, cash flow needs and contingencies. City Council Fund Balance Classifications Fund Fund Funds Total approval is required before any cash can be withdrawn from the reserve fund. The Council shall have the Nonspendable: discretion to use the reserve for one time emergencies only and not to be used for ongoing expenses. At Items not in spendable form: the time of City Council approval of any use of reserves, a Stabilization Policy laying out the plans for Prepaids, supplies and other assets $622,329 $622,329 restoration of reserves must be simultaneously put in place with the Council’s approval. The City’s cash Loans receivable 1,212,042 1,212,042 reserve as of June 30, 2018, which is a component of unassigned fund balance of the General Fund, is Advance to other funds 16,133,282 16,133,282 $17,498,226, which is approximately 11% of fiscal year 2018-19 budgeted General Fund expenditures. Total Nonspendable Fund Balances 17,967,653 17,967,653 As the City experiences net revenue gains in future years, the cash balance must continue to be maintained at or above to 15% of total expenditures, following the stabilization policy, in order to allow Restricted for: Street Improvement Projects $2,367,517 2,367,517 the City to build up its capacity to handle future short term economic downturns or emergencies without Employment and Training Programs 2,019,263 2,019,263 cutting services. Public Safety Grant Programs (Police and Fire) 324,961 324,961 Lighting and Landscaping 1,222,852 1,222,852 D. Deficit Fund Balances and Accumulated Deficits Housing and Community Development $25,064,193 175,583 25,239,776 Debt Service 9,844,431 9,844,431 Community Development Projects 19,477,072 19,477,072 At June 30, 2018, the following funds had deficit fund balance or deficit net position, which will be Other Capital Projects 3,629,481 3,629,481 eliminated by future revenues:

Total Restricted Fund Balances 25,064,193 39,061,160 64,125,353 Amount Assigned to: Non Major Governmental Funds: Other Capital Projects 43,906 43,906 Other Contracts 72,506 72,506 Paratransit Operations Special Revenue Fund $2,908,749 Total Assigned Fund Balances 72,506 43,906 116,412 Rent Control Special Revenue Fund 87,679 Cost Recovery Special Revenue Fund 3,090,390 Unassigned: General Fund 17,590,764 17,590,764 General Debt Service Fund 87 Other Governmental Fund Deficit Residuals (8,939,781) (8,939,781) Civic Center Debt Service Fund 2,852,876 Total Unassigned Fund Balances 17,590,764 (8,939,781) 8,650,983 Non Major Enterprise Funds: Total Fund Balances (Deficits) $35,630,923 $25,064,193 $30,165,285 $90,860,401 Storm Sewer 2,616,147 Cable TV 3,413,725 Internal Service Fund: Insurance Reserves 6,462,314 Private-Purpose Trust Fund: Successor Agency to the Richmond Community Redevelopment Agency 49,351,828

96 97 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 9 – FUND BALANCES AND NET POSITION (Continued) NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS (Continued) E. Net Position Restatements Benefits Provided – CalPERS provides service retirement and disability benefits, annual cost of living Management adopted the provisions of the following Governmental Accounting Standards Board adjustments and death benefits to plan members, who must be public employees and beneficiaries. (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Benefits are based on years of credited service, equal to one year of full time employment. Members with Pensions (OPEB), which became effective during the year ended June 30, 2018. In June 2015, GASB five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members issued Statement No. 75 and the intention of this Statement is to improve the usefulness of information are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the for decisions made by the various users of the financial reports of governments whose employees – both following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death active employees and inactive employees – are provided with postemployment benefits other than Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ pensions by requiring recognition of the entire net OPEB liability and a more comprehensive measure of Retirement Law. OPEB expense. The City’s employees hired on or before December 31, 2012 participate in the Miscellaneous Plan under The implementation of the Statement required the City to make prior period adjustments. As a result, the the 2.7% @ 55 Benefit Formula or the Safety Plan under the 3.0% @ 50 (Police) or 3.0% @ 55 (Fire) beginning net position of the Governmental Activities, Business-Type Activities, Enterprise Funds and Benefit Formula. The Pension Reform Act of 2013 (PEPRA), Assembly Bill 340, is applicable to the Insurance Reserve Internal Service Fund were restated and reduced by the amounts in the table below. employees new to CalPERS and hired after December 31, 2012. The City’s employees hired on or after See Note 12. January 1, 2013 participate under the Miscellaneous Plan 2.0% @ 62 Benefit Formula or the 2.7% @ 57 (Police and Fire) Benefit Formula. Restatement Governmental activities $117,406,476 The Plans’ provisions and benefits in effect at June 30, 2018, are summarized as follows: Business-type activities 9,161,411 Enterprise Funds: Miscellaneous Richmond Housing Authority Fund 4,589,812 Prior to On or after Port Fund 1,038,172 Hire date January 1, 2013 January 1, 2013 Municipal Sewer Fund 1,821,354 Benefit formula 2.7% @ 55 2.0% @ 62 Benefit vesting schedule 5 years service 5 years service Storm Sewer Fund 91,068 Benefit payments monthly for life monthly for life Cable TV Fund 1,621,005 Retirement age 50 - 55 52 - 55 Insurance Reserves Internal Service Fund 2,003,489 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.0% to 2.5%

Required employee contribution rates 8.00% 6.75% Required employer contribution rates 12.242% 12.242% NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS Required UAL Contribution $6,121,476

For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to Safety - Police Safety - Fire Safety - Police and Fire Prior to Prior to On or after pensions, and pension expense, information about the fiduciary net position of the Plans and additions Hire date January 1, 2013 January 1, 2013 January 1, 2013 to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are Benefit formula 3.0% @ 50 3.0% @ 55 2.7% @ 57 reported by the California Public Employees’ Retirement System (CalPERS) Financial Office. For this Benefit vesting schedule 5 years service 5 years service 5 years service purpose, benefit payments (including refunds of employee contributions) are recognized when currently Benefit payments monthly for life monthly for life monthly for life due and payable in accordance with the benefit terms. Investments are reported at fair value. Retirement age 50 50 - 55 50 - 57 Monthly benefits, as a % of eligible compensation 3.00% 2.4% to 3.0% 2.0% to 2.7% A. General Information about the CalPERS Pension Plan Required employee contribution rates 9.00%* 9.00%* 11.25% Required employer contribution rates 19.813% 19.813% 19.813% Required UAL Contribution $7,884,396 Plan Descriptions – All qualified permanent and probationary employees are eligible to participate in the City’s separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple-employer * Effective July 1, 2015, Safety (Police and Fire) employees hired prior to January 1, 2013 pay 3% of the employer's defined benefit pension plans administered by CalPERS, which acts as a common investment and required contribution. Therefore, the required employer contribution rate is 16.813% and required employee contribution administrative agent for its participating member employers. Benefit provisions under the Plans are rate is 12%. established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

98 99 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS (Continued) (Continued)

Beginning in fiscal year 2016, CalPERS collects employer contributions for each Plan as a percentage of Actuarial Assumptions – For the measurement period ended June 30, 2017, the total pension liabilities payroll for the normal cost portion as noted in the rates above and as a dollar amount for contributions were determined by rolling forward the June 30, 2016 total pension liability. The June 30, 2017 total toward the unfunded liability (UAL). The dollar amounts are billed on a monthly basis. The City’s pension liabilities were based on the following actuarial methods and assumptions: required contributions for the unfunded liability in the Miscellaneous and Safety Plans were $6,121,476 and $7,884,396, respectively, as noted in the tables above. Miscellaneous (1) Safety (1) Valuation Date June 30, 2016 June 30, 2016 Employees Covered – As of the June 30, 2016 actuarial valuation date and the June 30, 2017 Measurement Date June 30, 2017 June 30, 2017 measurement date, the following employees were covered by the benefit terms for each Plan: Actuarial Cost Method Entry-Age Normal Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Miscellaneous Safety Discount Rate 7.15% 7.15% June 30, 2016 June 30, 2017 June 30, 2016 June 30, 2017 Inflation 2.75% 2.75% Inactive employees or beneficiaries currently receiving benefits 894 915 490 502 Payroll Growth 3.0% 3.0% Inactive employees entitled to but not yet receiving benefits 511 509 74 76 Projected Salary Increase 3.2% -12.2% (2) 3.7% - 20.0% (2) Active employees 469 454 258 248 Investment Rate of Return 7.50% (3) 7.50% (3) Total 1,874 1,878 822 826 Derived using CalPERS Membership Data for all Derived using CalPers Membership Data for all Mortality Funds (4) Funds (4)

Contract COLA up to 2.75% until Purchasing Contract COLA up to 2.75% until Purchasing As of June 30, 2018, the City had 451 active employees in the Miscellaneous Plan and 258 active Power Protection Allowance Floor on Power Protection Allowance Floor on employees in the Safety Plan. Post Retirement Benefit Increase Purchasing Power applies, 2.75% thereafter Purchasing Power applies, 2.75% thereafter

Contributions – Section 20814(c) of the California Public Employees’ Retirement Law requires that the (1) Actuarial assumptions are the same for all benefit tiers employer contribution rates for all public employers be determined on an annual basis by the actuary and (2) Depending on age, service and type of employment shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both (3) Net of pension plan investment expenses, including inflation Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially (4) The mortality table used was developed based on CalPERS' specific data. The table includes 5 years of mortality improvements using Society determined rate is the estimated amount necessary to finance the costs of benefits earned by employees of Actuaries Scale AA. For more details on this table, please refer to the CalPERS 2014 Experience Study report available on CalPERS website. during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of All other actuarial assumptions used in the June 30, 2016 valuation were based on the results of an employees. actuarial experience study for the period 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be found on the CalPERS website under Forms and Contributions for the year ended June 30, 2018 were $10,436,250 for the Miscellaneous Plan and Publications. $14,013,858 for the Safety Plan. Change of Assumptions – In 2017, the accounting discount rate was reduced from 7.65% to 7.15%. B. Net Pension Liability Discount Rate – The discount rate used to measure the total pension liability was 7.15% for each Plan. The City’s net pension liability for each Plan is measured as the total pension liability, less the pension To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan’s fiduciary net position. The net pension liability of each Plan is measured as of June 30, 2017, plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different using an annual actuarial valuation as of June 30, 2016 rolled forward to June 30, 2017 using standard from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. update procedures. A summary of principal assumptions and methods used to determine the net pension Therefore, the current 7.15% discount rate is adequate and the use of the municipal bond rate calculation liability is shown below. is not necessary. The long term expected discount rate of 7.15% is applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website under the GASB 68 section.

100 101 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS (Continued) (Continued)

C. Changes in the Net Pension Liability In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows The changes in the Net Pension Liability as of the June 30, 2017 Measurement Date for each Plan were developed assuming that both members and employers will make their required contributions on follows: time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11- Miscellaneous Plan: Increase (Decrease) Total Pension Plan Fiduciary Net Pension 60 years) using a building-block approach. Using the expected nominal returns for both short-term and Liability Net Position Liability/(Asset) long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for Balance at June 30, 2016 Measurement Date $446,234,376 $326,226,506 $120,007,870 cash flows as the one calculated using both short-term and long-term returns. The expected rate of return Changes in the year: was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one Service cost 8,053,459 8,053,459 quarter of one percent. Interest on the total pension liability 32,804,753 32,804,753 Differences between actual and expected experience (4,464,966) (4,464,966) The table below reflects the long-term expected real rate of return by asset class. The rate of return was Changes in assumptions 25,548,824 25,548,824 calculated using the capital market assumptions applied to determine the discount rate and asset Changes in benefit terms allocation. These geometric rates of return are net of administrative expenses. Plan to plan resource movement (50,018) 50,018 Contribution - employer 8,860,295 (8,860,295) Contribution - employees 2,996,354 (2,996,354) Current Target Real Return Real Return Net investment income 35,805,938 (35,805,938) Asset Class Allocation Years 1 - 10(a) Years 11+(b) Administrative expenses (481,651) 481,651 Benefit payments, including refunds of employee Global Equity 47.0% 4.90% 5.38% contributions (25,074,448) (25,074,448) Global Fixed Income 19.0% 0.80% 2.27% Net changes 36,867,622 22,056,470 14,811,152 Inflation Sensitive 6.0% 0.60% 1.39% Balance at June 30, 2017 Measurement Date $483,101,998 $348,282,976 $134,819,022 Private Equity 12.0% 6.60% 6.63% Real Estate 11.0% 2.80% 5.21% Safety Plan: Increase (Decrease) Infrastructure and Forestland 3.0% 3.90% 5.36% Total Pension Plan Fiduciary Net Pension Liquidity 2.0% -0.40% -0.90% Liability Net Position Liability/(Asset)

Total 100.0% Balance at June 30, 2016 Measurement Date $580,176,320 $411,354,659 $168,821,661 Changes in the year: Service cost 11,650,927 11,650,927 (a) An expected inflation of 2.5% used for this period. Interest on the total pension liability 43,264,626 43,264,626 (b) An expected inflation of 3.0% used for this period. Differences between actual and expected experience 797,969 797,969 Changes in assumptions 35,109,898 35,109,898 Changes in benefit terms Plan to plan resource movement 50,018 (50,018) Contribution - employer 12,699,049 (12,699,049) Contribution - employees 4,471,008 (4,471,008) Net investment income 45,166,243 (45,166,243) Administrative expenses (607,337) 607,337 Benefit payments, including refunds of employee contributions (33,620,000) (33,620,000) Net changes 57,203,420 28,158,981 29,044,439 Balance at June 30, 2017 Measurement Date $637,379,740 $439,513,640 $197,866,100

Totals - Miscellaneous and Safety Plans $1,120,481,738 $787,796,616 $332,685,122

102 103 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS (Continued) (Continued)

Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents the D. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions net pension liability of the City for each Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1- For the year ended June 30, 2018, the City recognized pension expense of $53,518,486. At June 30, percentage point lower or 1-percentage point higher than the current rate: 2018, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Miscellaneous Safety Miscellaneous Plan Deferred Outflows Deferred Inflows 1% Decrease 6.15% 6.15% of Resources of Resources Net Pension Liability $195,707,528 $282,296,768 Pension contributions subsequent to measurement date $10,436,250 Current Discount Rate 7.15% 7.15% Differences between Expected and Actual Experience ($2,504,700) Net Pension Liability $134,819,022 $197,866,100 Changes of Assumptions 13,382,717 Net Differences between Projected and Actual Earnings on 1% Increase 8.15% 8.15% Pension Plan Investments 5,056,303 Net Pension Liability $84,290,283 $128,531,169 Total $28,875,270 ($2,504,700)

Pension Plan Fiduciary Net Position – Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Safety Plan Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $14,013,858 Differences between Expected and Actual Experience 2,650,654 Changes of Assumptions 25,357,149 ($1,809,233) Net Differences between Projected and Actual Earnings on Pension Plan Investments 6,422,812 Total $48,444,473 ($1,809,233)

Total Both Plans $77,319,743 ($4,313,933)

104 105 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 10 – CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM PENSION PLANS NOTE 11 – OTHER CITY PENSION PLANS (Continued) (Continued) General Pension Plan – Retirement and other benefits are paid from the assets of the Plan and from $24,450,108 reported as deferred outflows of resources related to contributions subsequent to the related investment earnings. The City is required under its charter to contribute the remaining amounts measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, necessary to fund the Plan using the entry age-normal actuarial method as specified by Ordinance. 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related Management of the Plan is vested in the General Pension Board which consists of seven members: the to pensions will be recognized as pension expense as follows: Mayor, City Manager, Director of Finance, two members appointed by the Mayor, with the concurrence of five members of the City Council, each of whom shall be and remain a resident of the City in order to Annual Amortization be a member of the Board and serve a term of five years, and two members to be elected every five years Year Ended by secret ballot vote of the rank and file of Plan employees and of Plan employees who have retired and are receiving pensions from the Plan. Four members of the General Pension Board are to be concurred in June 30 Miscellaneous Safety Total by four members. 2019 $9,691,347 $9,499,799 $19,191,146 2020 6,744,137 17,757,367 24,501,504 The Plan is closed to new members. Retirement benefits for Plan members are calculated as one-half of 2021 2,109,436 8,648,932 10,758,368 the average annual salary attached to the position held by the retiree during the three years prior to the 2022 (2,610,600) (3,284,716) (5,895,316) date of retirement. Surviving spouses receive 100% of the retiree’s pension. Benefit terms provide for annual cost-of-living adjustments to each member’s retirement allowance subsequent to the member’s 2023 retirement date. The annual adjustments are an automatic increase of 2% per year. City Council may Total $15,934,320 $32,621,382 $48,555,702 grant additional increases of up to 3% per year to bring the total increase in a given year to 5%.

E. Subsequent Change in Discount Rate Police and Firemen’s Pension Plan – Funding for the Plan is provided from the Secured Pension Override Special Revenue Fund. Employees were vested after five years of service. Members of the Plan In December 2016, CalPERS’ Board of Directors voted to lower the discount rate used in its actuarial are allowed normal retirement benefits after 25 or more continuous years of service. The City is required valuations from 7.5% to 7.0% over three fiscal years, beginning in fiscal year 2018. The change in the under its charter to contribute the remaining amounts necessary to fund the Plan using the entry age- discount rate will affect the contribution rates for employers beginning in fiscal year 2019 and result in normal actuarial method as specified by Ordinance. Management of the Plan is vested in the Pension increases to employers’ normal costs and unfunded actuarial liabilities. Board which consists of seven members: the Mayor, City Manager, Director of Finance, two members appointed by the Mayor, with the concurrence of four members of the City Council, each of whom shall be and remain a resident of the City in order to be a member of the Board and serve a term of five years, NOTE 11 – OTHER CITY PENSION PLANS one representative of the Police Department and one representative of the Fire Department.

A. Plan Descriptions and Funding Policies The Plan is closed to new members. Retirement benefits for Plan members are calculated as one-half of the annual salary attached to the rank or position held by the retiree one year prior to the date of The City administers three single-employer pension plans which are funded entirely by City retirement. Surviving spouses receive 100% of the retiree’s pension. Benefit terms provide for annual contributions. These are the General Pension Plan, Police and Firemen’s Pension Plan, and Garfield cost-of-living adjustments to each member’s retirement allowance subsequent to the member’s retirement Pension Plan (collectively, the “Plans”). The General Pension Plan, a defined benefit pension plan, date. The annual adjustments are an increase each year for changes in the salary attached to the retiree’s covers twelve former City employees (or their beneficiaries) not covered by CalPERS, all of whom have rank in the year before retirement. retired. The Police and Firemen’s Pension Plan, a defined benefit pension plan, covers thirty-six retired police and fire personnel (or their beneficiaries) employed prior to October 1964. The Garfield Pension Garfield Pension Plan – Retirement and other benefits are paid from the assets of the Plan and from Plan is a defined benefit pension plan established for a retired police chief. The Plans provide retirement, related investment earnings. Plan provisions have been established and may be amended upon agreement disability, and death benefits based on the employee’s years of service, age and final compensation. between the City and Mr. Garfield. Management of the Plan is vested in the City Council. Benefit provisions for the Plans are established by City Ordinance. No separate financial statements are issued for the Plans. Mr. Garfield’s pension and any continuation to his spouse receive the same cost-of-living increases as the City’s police employees covered by CalPERS. (CalPERS cost-of-living increases include a 2% per year The City established the Secured Pension Override Special Revenue Fund to which proceeds of a special increase, subject to CPI increase constraints, and purchasing power protection through the CalPERS incremental property tax levy voted by the citizens of the City of Richmond are credited for the payment Purchasing Power Protection Allowance.) Mr. Garfield’s surviving spouse receives 50% of the retiree’s of benefits under the City’s pension plans. The incremental property tax revenue received for the year pension. ended June 30, 2018 was $9,075,692, and the City used the funds to pay the General Pension Plan and the Police and Firemen’s Pension Plan contributions of $73,383 and $1,270,466, respectively.

106 107 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 11 – OTHER CITY PENSION PLANS (Continued) NOTE 11 – OTHER CITY PENSION PLANS (Continued)

B. Significant Accounting Policies (2) The total amount invested in common and preferred stocks shall not exceed at cost at the time of purchase twenty-five percent of the total amount invested pursuant to this City contributions for all plans are recognized when due and the City has made a formal commitment to section. provide contributions. Benefit payments and refunds are recognized when due and payable in accordance (3) The total amount invested in the common and preferred stocks of any one company with the terms of the Plan. Administrative costs for all plans, except the investment management fees of shall not exceed at cost of the time of purchase two percent of the total amount the Police and Fireman’s Pension Plan, are paid by the City’s General Fund. The investment invested pursuant to this section and shall not exceed five percent of the outstanding management fees are financed through investment earnings. Assets are valued at fair value based on preferred or common stock of that company. available market information obtained from independent sources. (4) No funds shall be invested in the common stocks of any company unless it has paid cash dividends on such stocks in eight of the ten years immediately preceding its C. Pension Plan Assets purchase by the Board. (5) No funds shall be invested in the stocks or other securities of any company other than At June 30, 2018 the pension plans reported assets available for benefits as shown below. For actuarial a bank or insurance company unless it has assets of at least one hundred million purposes, the value of the Plans’ assets were determined to be fair value. dollars ($100,000,000), or in the stocks or other securities of a bank or insurance company unless it has assets of at least fifty million dollars ($50,000,000). City of Richmond Investment Pool $1,526,074 (6) The total amount invested in real estate and other than real estate owned by or leased Local Agency Investment Fund (Garfield Plan) 176,245 to the City of Richmond, which amount may include land, buildings, land and Wellington Trust Company Mutual Fund (Police and Firemen’s Plan) 10,932,280 buildings or real estate loans, shall not exceed twenty-five percent of the total amount Interest receivable 2,474 invested pursuant to this section and such investments shall be restricted to first trust deeds which are insured by the Federal Housing Administration or which are Assets available for benefits at June 30, 2018 $12,637,073 guaranteed by the Veterans Administration.

The Wellington Trust Company Fund investments, classified in Level 2 of the fair value hierarchy, are The Garfield Pension Plan does not have a separate investment policy, therefore it uses the City’s valued using the market approach, which uses prices and other information generated from market investment policy. transactions, which typically includes securities priced with unadjusted market quotes, evaluated bids, market multiples, and trade information, and also generally includes short term securities valued at Interest and Credit Risk amortized cost which approximates market value. The City of Richmond Investment Pool and the California Local Agency Investment Fund (LAIF) are not subject to the fair value hierarchy. Fair value is Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an defined as the quoted market value on the last trading day of the period. investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The City invests in equities which may be drawn down as needed, subject Investment Policies to terms of the underlying trust agreement. The investments held in the Pension Trust Funds all mature in less than one year. The General Pension and Police and Firemen’s Pension Plans’ policies in regard to the allocation of invested assets is established and may be amended by Resolution of the respective Boards. The Plans Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the allow investments in the following: investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2018, the investments in the Pension Trust Funds were not rated. (a) In investments which are authorized by General law for savings banks. Rate of Return (b) In investments other than those specified in subdivision (a) hereof, including, but not limited to, corporate bonds and securities, common stocks, preferred stocks, investments in real For the year ended June 30, 2018, the annual money-weighted rate of return on pension plan investments, estate and investment trusts, provided that the total amount invested pursuant to this net of pension plan investment expense, for the Police and Firemen’s, General Pension and Garfield subdivision shall not exceed fifty percent (50%) of the total amount of funds invested Pension Plans was 4.9%, 1.0% and 1.0%, respectively. The money-weighted rate of return expresses pursuant to this section, and provided further that the following conditions are met: investment performance, net of investment expense, adjusted for the changing amounts actually invested.

(1) Any stocks or other corporate securities, in which funds are invested, except stocks of banks, insurance companies or mutual funds, shall be registered on a national securities exchange as provided by the Federal Securities Exchange Act.

108 109 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 11 – OTHER CITY PENSION PLANS (Continued) NOTE 11 – OTHER CITY PENSION PLANS (Continued)

D. Net Pension Liability of the Plans Based on the 5 previous years the City has on average contributed 75% and 116% of the Actuarially Determined Contribution (ADC) for the General Pension Plan and Garfield Pension Plan, respectively. A The components of the net pension liability of the City for each of the Plans is the total pension liability, sufficiency test was performed including: (1) expected benefit payments for all future years; (2) assuming less each Plan’s fiduciary net position. that 75% of the ADC is contributed to the General Pension Plan and 100% of the ADC is contributed to the Garfield Pension Plan in future years; (3) assuming that future contribution losses are amortized Actuarial Assumptions. The total pension liability as of June 30, 2018 was determined based on June 30, according to the Plans’ funding policies; (4) using the Plans’ assumed investment return before the 2017 actuarial valuations rolled forward to June 30, 2018 using standard update procedures. The projected asset depletion (if any); and (5) using a 20-year AA tax-exempt general obligation municipal following actuarial assumptions applied to all periods included in the measurement: bond index rate of 3.62% (using as a municipal bond rate source the Fidelity 20-Year General Obligation AA Municipal Bond Index as of June 30, 2018) after the projected asset depletion. Based on these parameters, each of the Plan’s assets are projected to be sufficient to pay all future benefits until a Police and Firemen's General Garfield deminimus amount of estimated future benefits remain. Therefore, the long-term expected rate of return Plan Pension Plan Pension Plan of 3.00% was used as the discount rate for each of these Plans. Discount rate, net of investment expenses 5.75% 3.18% 3.00% Expected return on plan assets 5.75% 3.00% 3.00% The long-term expected rate of return on pension plan investments was determined for each Plan using a Inflation rate 2.75% 2.75% 2.75% building-block method in which best-estimates of expected future real rates of return (expected returns, Cost-of-living increases 3% per year 5% per year 2.75% per year net of pension plan investment expense and inflation) are developed for each major asset class. These Actuarial cost method Entry age normal Entry age normal Entry age normal asset class estimates are combined to produce the portfolio long-term expected rate of return by weighting Salary increases N/A N/A N/A the expected future real rates of return by the current asset allocation percentage (or target allocation, if available) and by adding expected inflation (2.75%). All results are then rounded to the nearest quarter Mortality rates were based on the California PERS Mortality Table in its 2014 experience study (based on percentage point. CalPERS 2001-2011 experience). The best-estimate of expected future real rates of return were developed by aggregating data from several Discount Rates. The discount rates used to measure the total pension liability for the Police and published capital market assumption surveys and deriving a single best-estimate based on the average Firemen’s Pension Plan, General Pension Plan and Garfield Pension Plan were 5.75%, 3.00%, and 3.00%, survey values. These capital market assumptions reflect both historical market experience as well as diverse respectively, as of June 30, 2017 and 2018. views regarding anticipated future returns. The expected inflation assumption was developed based on an analysis of historical experience blended with forward-looking expectations available in market data. For the Police and Firemen’s Pension Plan, based on the 5 previous years the City has on average contributed 98% of the Actuarially Determined Contribution (ADC). A sufficiency test was performed including: (1) expected benefit payments for all future years; (2) assuming that 98% of the ADC is contributed to the Plan in future years; (3) assuming that future contribution losses are amortized according to the Plan’s funding policy; (4) using the Plan’s assumed investment return before the projected asset depletion (if any); and (5) using a 20-year AA tax-exempt general obligation municipal bond index rate of 3.62% (using as a municipal bond rate source the Fidelity 20-Year General Obligation AA Municipal Bond Index as of June 30, 2018) after the projected asset depletion. Based on these parameters, plan assets are projected to be sufficient to pay all future benefits until a deminimus amount of estimated future benefits remain. Therefore, the Plan’s long-term expected rate of return of 5.75% was used as the discount rate.

110 111 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 11 – OTHER CITY PENSION PLANS (Continued) NOTE 11 – OTHER CITY PENSION PLANS (Continued)

Best estimates of geometric real and nominal rates of return for each major asset class included in the E. Changes in the Net Pension Liability of Each Plan Plans’ asset allocation as of the measurement date are summarized below: The net pension liability of each Plan is measured as of June 30, 2018 as follows:

Police and Firemen's Plan: Increase (Decrease) Allocation at Long-Term Long-Term Expected Measurement Expected Real Nominal Rate of Total Pension Plan Fiduciary Net Pension Asset Class Date Rate of Return Return Liability Net Position Liability/(Asset) Balance at June 30, 2017 $19,271,774 $12,384,593 $6,887,181 Police and Firemen's Plan: Changes in the year: Domestic Equity 56% 5.39% 8.14% Service cost International Equity 0% 5.20% 7.95% Interest on the total pension liability 1,031,755 1,031,755 Fixed Income 38% 1.98% 4.73% Differences between actual and expected experience Real Estate and Alternatives 0% 4.25% 7.00% Changes in assumptions Cash and Equivalents 6% 0.79% 3.54% Changes in benefit terms Total 100% 6.91% Contribution - employer 1,270,466 (1,270,466) Reduced for assumed investment expense (0.60%) Contribution - employees Total (weighted avg, rounded to 1/4%) 6.25% (1) Net investment income 589,028 (589,028)

General Pension Plan: Administrative expenses Benefit payments, including refunds of Domestic Equity 0% 5.39% 8.14% International Equity 0% 5.20% 7.95% employee contributions (2,656,508) (2,656,508) Fixed Income 0% 1.98% 4.73% Net changes (1,624,753) (797,014) (827,739) Real Estate and Alternatives 0% 4.25% 7.00% Balance at June 30, 2018 $17,647,021 $11,587,579 $6,059,442 Cash and Equivalents 100% 0.79% 3.54% Total 100% 3.52% Plan fiduciary net position as a percentage of Reduced for assumed investment expense (0.50%) the total pension liability 65.7% Total (weighted avg, rounded to 1/4%) 3.00% General Pension Plan: Increase (Decrease) Garfield Pension Plan: Total Pension Plan Fiduciary Net Pension Domestic Equity 0% 5.39% 8.14% Liability Net Position Liability/(Asset) International Equity 0% 5.20% 7.95% Balance at June 30, 2017 Fixed Income 0% 1.98% 4.73% $2,932,456 $449,871 $2,482,585 Real Estate and Alternatives 0% 4.25% 7.00% Changes in the year: Cash and Equivalents 100% 0.79% 3.54% Service cost Total 100% 3.52% Interest on the total pension liability 80,100 80,100 Differences between actual and expected experience Reduced for assumed investment expense (0.50%) Changes in assumptions (20,669) (20,669) Total (weighted avg, rounded to 1/4%) 3.00% Changes in benefit terms (1) The preliminary return for the Police and Firemen’s Plan of 6.25% was then reduced Contribution - employer 814,594 (814,594) by 50 basis points to 5.75% in order to provide a margin for adverse deviation. Contribution - employees Net investment income 2,207 (2,207) Administrative expenses Benefit payments, including refunds of employee contributions (524,939) (524,939) Net changes (465,508) 291,862 (757,370) Balance at June 30, 2018 $2,466,948 $741,733 $1,725,215

Plan fiduciary net position as a percentage of the total pension liability 30.1%

112 113 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 11 – OTHER CITY PENSION PLANS (Continued) NOTE 11 – OTHER CITY PENSION PLANS (Continued)

Garfield Pension Plan: Increase (Decrease) F. Actuarially Determined Contributions Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) As of the June 30, 2017, actuarial valuations used to calculate the actuarially determined contributions Balance at June 30, 2017 $691,642 $297,317 $394,325 (ADC) for each Plan, the ADC’s were determined using the entry-age normal cost method and the Changes in the year: assumptions in Note 11B above. Service cost Interest on the total pension liability 19,334 19,334 For the Police and Firemen’s Pension Plan, the City’s contribution policy is to annually contribute an Differences between actual and expected experience amount equal to (1) amortization of the unfunded liability as a level-dollar over a 10-year closed period Changes in assumptions as of July 1, 2013, plus (2) future gains and losses amortized over the same period, but not less than five Changes in benefit terms years. Over the past five years, the City has contributed an average of 98% of the Actuarially Contribution - employer 102,140 (102,140) Determined Contribution. Contribution - employees Net investment income 2,627 (2,627) Administrative expenses For the General Pension Plan, the City’s contribution policy is to annually contribute an amount equal to Benefit payments, including refunds of (1) amortization of the unfunded liability as a level-dollar over a 6-year closed period as of July 1, 2013, employee contributions (94,323) (94,323) plus (2) future gains and losses amortized over the same period, but not less than five years. Over the Net changes (74,989) 10,444 (85,433) past five years, the City has contributed an average of 75% of the Actuarially Determined Contribution. Balance at June 30, 2018 $616,653 $307,761 $308,892 For the Garfield Pension Plan, the City’s contribution policy is to annually contribute an amount equal to Plan fiduciary net position as a percentage of (1) amortization of the unfunded liability as a level-dollar over a 7-year closed period as of July 1, 2013, the total pension liability 49.9% plus (2) future gains and losses amortized over the same period, but not less than five years. Over the past five years, the City has contributed an average of 116% of the Actuarially Determined Contribution. Totals - Other City Pension Plans $20,730,622 $12,637,073 $8,093,549

The Actuarially Determined Contribution and the actual contributions for each Plan for the year ended Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net June 30, 2018 are presented below: pension liability of the City for each of the Plans, calculated using the discount rate as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point Actuarially lower or 1-percentage-point higher than the current rate: Determined Amount Percent Contribution Contributed Contributed Police and General Garfield Firemen's Plan Pension Plan Pension Plan Police and Firemen's Pension Plan $1,389,612 $1,270,466 91% 1% Decrease 4.75% 2.18% 2.00% General Pension Plan 947,219 814,594 86% Net Pension Liability $6,999,286 $1,844,294 $338,457 Garfield Pension Plan 86,103 102,140 119%

Current Discount Rate 5.75% 3.18% 3.00% G. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions Net Pension Liability $6,059,442 $1,725,215 $308,892 For the year ended June 30, 2018, the City recognized pension expense for each of the Plans as follows: 1% Increase 6.75% 4.18% 4.00% Net Pension Liability $5,207,932 $1,616,057 $281,692 Pension Expens e Police and Firemen's Plan $540,790 General Pension Plan 68,268 Garfield Pension Plan 16,951

Total $626,009

114 115 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 11 – OTHER CITY PENSION PLANS (Continued) NOTE 11 – OTHER CITY PENSION PLANS (Continued)

At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources The Statement of Changes in Plan Net Position for the year ended June 30, 2018 follows: related to pensions for these Plans from the following sources: Police and Deferred Outflows Deferred Inflows General Firemen's Garfield of Resources of Resources Pension Pension Pension Pension contributions subsequent to measurement date - - ADDITIONS Differences between Expected and Actual Experience - - Changes of Assumptions - - Net investment income: Net Differences between Projected and Actual Net increase (decrease) in the fair value of investments $12 $400,794 Earnings on Pension Plan Investments $217,871 - Interest income 2,195 254,046 $2,620 Total $217,871 $0 Investment management fees (65,812) 7 Contribution from the City 814,594 1,270,466 102,140

Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions Total Additions 816,801 1,859,494 104,767 will be recognized as pension expense as follows: DEDUCTIONS Year Ended Annual Pension benefits 524,939 2,656,508 94,323 June 30 Amortization 2019 $224,812 Total Deductions 524,939 2,656,508 94,323 2020 80,169 2021 (110,203) Net Increase (Decrease) 291,862 (797,014) 10,444 2022 23,093 NET POSITION RESTRICTED FOR PENSIONS

H. Plan Financial Statements Beginning of year 449,871 12,384,593 297,317 End of year $741,733 $11,587,579 $307,761 The Statement of Net Position for the Plans at June 30, 2018 follows:

Police and I. PARS Defined Contribution Plan General Firemen's Garfield Pension Pension Pension Effective July 1, 2014, the City contracted with the Public Agency Retirement System (PARS), to ASSETS sponsor a Section PARS 457 FICA Alternative Retirement Plan created in accordance with IRC Sections 3121(b)(7)(F) and 457(b), which is a qualified defined contribution pension plan covering all eligible Pension plan cash and investments: part-time, seasonal and temporary employees of the City on that date and hired thereafter. City of Richmond Investment Pool $741,688 $652,968 $131,418 Local Agency Investment Fund 176,245 The Plan requires these employees to contribute 6.2% and the City to contribute 1.3% of the employees Mutual Fund Investments 10,932,280 pay plus administration costs. The City’s required contributions of $26,736 and the employees’ required Accounts receivable 45 2,331 98 contributions of $127,507 were made during the fiscal year ending June 30, 2018.

Total Assets 741,733 11,587,579 307,761 NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS

NET POSITION A. General Information about the City’s Other Post Employment Benefit (OPEB) Plan Restricted for employees' pension benefits $741,733 $11,587,579 $307,761 Plan Description - In order to qualify for postemployment medical and dental benefits an employee must retire from the City and maintain enrollment in one of the City’s eligible health plans. The City pays a portion of the CalPERS premiums for retirees and their dependents that vary by employment classification. In addition, the following eligibility rules and contribution requirements apply for future retirees, followed by current retirees.

116 117 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued) NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued)

The City is the Plan administrator, while PARS administers the investment trust. The City’s OPEB Plan Plan Provisions for Current Retirees does not issue separate financial statements. PARS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained from Public Monthly Premium Reimbursement Before/After Medicare Agency Retirement Services, 4350 Von Karman Avenue, Suite 100, Newport Beach, CA, 92660. Classification S ubgroup Eligibility

A summary of the Plan provisions follows: SEIU Local 1021 Retired July 1, 2007 or later Same as future retirees

Same as future retirees, but caps are: Plan Provisions for Future Retirees Retiree only or surviving spouse: $224/$182 Retired prior to July 1, 2007 Retiree +1 or more: $344/$284 Classification Eligibility (Age/Service Years) Monthly Premium Paid by City Before/After Medicare Eligibility Employee Monthly Contribution (1)

Service Retirement: Retired July 1, 2007 or later Same as future retirees 50/20, 51/18, 52/16, 53/14, 54/12, Retiree only or surviving spouse: the lesser of $435 and medical premium 55/10 Retiree +1 or more: the lesser of $567 and medical premium Same as future retirees, but caps are: Disability Retirement: any age/10 years Plus PEMHCA Minimum: $133 IFPTE, Miscellaneous Retired November 5, 1999 to June 30, Retiree only or surviving spouse: $224/$182 SEIU Local 1021 service Retired after 7/1/1995: Reimbursement allowed towards non-PERS plans None Executive M anagement 2007 Retiree +1 or more: $344/$284

Same as future retirees, but caps are: IFPTE, Miscellaneous Retiree only or surviving spouse: the lesser of $435 and medical premium Effective 1/1/2017: $50 Executive Management, Service Retirement: Retiree +1 or more: the lesser of $567 and medical premium Retiree only or surviving spouse: $124/$82 City Council Same as SEIU Plus PEMHCA Minimum: $133 Effective 1/1/2018: $100 Retired before November 5, 1999 Retiree +1 or more: $244/$184 Fire Local 188 Same as future retirees

Percentage of premium (medical premium minus PEMHCA minimum) Retire on or after 7/1/2006 Same as future retirees for retiree/dependents/surviving spouse up to premium for coverage. Effective 1/1/2017: $200 Percentage is 90%, increased to 100% after 27 years of service. Total City contribution, excluding PEMHCA minimum, is capped at Effective 1/1/2018: $300 Eligible at 35/15 Kaiser non-M edicare eligible premium for coverage selected. Same as future retirees, but caps are: Fire Local 188 35/15 Plus PEM HCA minimum: $133 Effective 7/1/2019: $400 Percentage of premium for retiree/dependents/surviving spouse up to Kaiser non-Medicare eligible premium for coverage selected. Percentage is Percentage of premium (medical premium minus PEMHCA minimum) for retiree/dependents/surviving spouse up to premium for coverage. Fire M anagement Retire before 7/1/2006 90%, increased to 100% after 27 years of service. Percentage is 80%, increased to 90% after 15 years of service and 100% Effective 1/1/2017: $200 after 25 years of service. Total City contribution, excluding PEMHCA minimum, is capped at Kaiser non-Medicare eligible premium for Effective 1/1/2018: $300 Fire M anagement and Fire coverage selected. Executive M anagement 35/15 Plus PEM HCA minimum: $133 Effective 7/1/2019: $400

Effective 1/1/2017: $150 Lesser of: percentage of premium for retiree/dependents/surviving spouse times medical premium minus PEM HCA minimum or percentage of Effective 1/1/2018: $225 premium for retiree/dependents/surviving spouse but no more than $827 per month, minus dental and vision premiums. Percentage is 50%, Effective 1/1/2019: $250 increased to 90% after 15 years of service, and 100% after 25 years of 10 years of service service Effective 1/1/2020: $275 Richmond Police Officer Service includes non City service Plus PEMHCA Minimum: $133 Association (RPOA) Minimum 5 years City Service City also pays 100% of dental and vision premiums. Effective 1/1/2021: $300

Police Widows Death in line of duty Full premium of medical, dental and vision None

Percentage of premium (medical premium minus PEMHCA minimum) Effective 7/1/2017: $300 50/20, 51/18, 52/16, 53/14, 54/12, for retiree/dependents/surviving spouse up to Kaiser (1) (Pre 55/10 Medicare) and 2nd highest premium plan (post Medicare). Percentage is Effective 7/1/2018: $425 Police M anagement and Police Service includes non City service 65%, increased to 75% after 20 years of service, and 100% after 25 years Executive M anagement Minimum 5 years City Service of service. Effective 7/1/2019: $525

(1) Prior to January 1, 2017, active Employees were not required to make monthly contributions.

118 119 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued) NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued)

Plan Provisions for Current Retirees (Continued) For retirees eligible to continue health benefits, but failing to meet the criterion in the tables above, the Monthly Premium Reimbursement Before/After Medicare City pays the Public Employees Medical and Hospital Care Act (PEMHCA) minimum, which is $133 in Classification Subgroup Eligibility 2018. Richmond Police Officer Association (RPOA) Retire on or after 7/1/2008 Same as future retirees Retired between 7/1/2004 and Same as future retirees, but: Plan Membership – As described in the table in Note 12A, Plan membership varies based on different 6/30/2008 Reimbursement capped at $614 employee bargaining groups. As of the June 30, 2017 valuation date, membership in the Plan considered of Retired between 7/1/1997 and Same as future retirees, but: the following; 6/30/2004 Reimbursement capped at $550

Percentage of premium (medical premium minus PEMHCA Active employees electing coverage 627 minimum) for retiree/dependents/surviving spouse including Active employees waiving coverage 44 dental and vision. Percentage is 65% for 10-19 years of service, increased to 75% after 20 years of service, and 100% after 27 Retiree and beneficiaries receiving benefits 607 years of service Total 1,278 Retired between 7/1/1994 and Premium paid for dental and vision. 6/30/1997 Plus PEMHCA minimum $133 Percentage of premium (medical premium minus PEMHCA B. Funding Policy and Actuarial Assumptions minimum) for retiree/dependents/surviving spouse including dental and vision. Percentage is 65% for 10-19 years of service, Funding Policy - During the year ended June 30, 2008, the City joined the Public Agencies Post- increased to 75% after 20 years of service, and 100% after 27 Retirement Health Care Plan, an agent multiple employer trust administered by Public Agency Retirement years of service Services (PARS). The balance in the City’s PARS trust account as of June 30, 2018 was $17,422,879. Reimbursement, excluding the PEMHCA minimum, capped at $210 for single coverage and $300 for 2-party coverage Premium paid for dental and vision. The City’s policy is to partially prefund these benefits by accumulating assets with PARS discussed Retired before 7/1/1994 Plus PEMHCA minimum: $133 above along with making pay-as-you-go payments pursuant to Resolution No. 52-06 of June 27, 2006. In Police Management and Police July 2016, the City adopted an additional funding policy to place into the PARS trust half of any one-time Executive Management Retired on or after 7/1/2007 Same as future retirees revenues and half of any year-end surplus in excess of the City’s minimum reserve policy (7%) in an effort to pay down the unfunded liability. In accordance with the policy, the City transferred $3,175,003 Percentage of premium (medical premium minus PEMHCA to the PARS trust, along with an additional contribution of $4,328,063, during the year ended June 30, minimum) for retiree/dependents/surviving spouse. Percentage is 2018. 65% for 10-19 years of service, increased to 75% after 20 years of service, and 100% after 27 years of service. Retired after 1/1/2007 - Reimbursement capped at Kaiser premium, excluding the PEMHCA minimum, for pre-Medicare and 2nd highest premium plan for post-Medicare for coverage selected Retired before 1/1/2007 - Reimbursement capped at 2nd highest premium plan, excluding the PEMHCA minimum, for coverage selected Retired after 7/1/1995: Reimbursement allowed towards non- Retired between 1/1/1995 (1) and PERS plans 6/30/2007 Plus PEMHCA minimum: $133

(1) Although the City did provide medical premium benefits with single and 2-party caps for Police Management that retired prior to January 1, 1995, as of June 30, 2018 there were no retirees receiving such benefits.

120 121 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued) NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued)

Actuarial Assumptions - The total OPEB liability was determined by an actuarial valuation as of June 30, Generally accepted accounting principles require that the liability discount rate be the single rate that 2017 rolled forward to June 30, 2018 using standard update procedures. The valuation used the following reflects the following: actuarial assumptions applied to all periods included in the measurement, unless otherwise specified: A. The long-term expected rate of return on OPEB plan investments that are expected to be used to Actuarial Assumptions finance the payment of benefits, to the extent that (1) the OPEB plan’s fiduciary net position is Valuation Date June 30, 2017 projected to be sufficient to make projected benefit payments and (2) OPEB plan assets are Measurement Date June 30, 2018 expected to be invested using a strategy to achieve that return; and Actuarial Cost Method Entry Age Normal Cost, level percent of pay Actuarial Assumptions: B. A yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average Discount Rate 4.12% rating of AA/Aa or higher (or equivalent quality on another rating scale), to the extent that the Inflation 2.75% conditions in A. are not met. The municipal bond rate source used as of June 30, 2018 the Fidelity CPI Medical Care 4.00% Payroll Growth 3.00% 20-Year General Obligation AA Municipal Bond Index. Investment Rate of Return 6.85% Index Rate for 20 year, tax exempt municipal bonds 3.62% Changes of assumptions since the prior actuarial valuation were: Mortality Based on assumptions for Public Agency Miscellaneous, Police and Fire  The discount rate was changed from 4.07% to 4.12% based on updated municipal bond rates. members published in the December 2017 CalPERS Experience Study.  Healthcare trend rates were reset to reflect updated cost increase expectations, including an Healthcare Cost Trend Rates: adjustment to reflect the impact of the Affordable Care Act’s Excise Tax on high-cost health 6.90% for 2018, 6.30% for 2019, 5.80% for 2020, 5.20% for 2021-2054, insurance plans. Health - Not Medicare Eligible transitioning to ultimate rate of 4.40% in 2074 and further years  Medical per capital claims costs were updated to reflect recent experience. 5.60% for 2018, 5.40% for 2019, 5.30% for 2020, 5.20% for 2021-2054,  Withdrawal, retirement, mortality, disability and salary increase rates were updated from the rates Health - Medicare Eligible transitioning to ultimate rate of 4.40% in 2074 and further years Dental To increase 4.00% annually used in the 6/30/2014 CalPERS Public Agency Miscellaneous, Police and Fire actuarial Vision To increase 3.00% annually valuations to rates published in the December 2017 CalPERS Experience Study.  The percent of future retiree only eligible for the PEMHCA minimum contribution assumed to elect coverage at retirement changed from 100% to 50% to reflect recent and anticipated plan The long-term expected rate of return on OPEB plan investments was determined using a building-block experience. method in which best-estimate ranges of expected future real rates of return (expected returns, net of  The percent of future retirees eligible for additional direct subsidy benefits assumed to elect OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are coverage at retirement changed from 100% to 90% to reflect recent plan experience. combined to produce the long-term expected rate of return by weighting the expected future real rates of  The percent of retirees assumed to elect non-spouse dependent coverage at retirement changed return by the target asset allocation percentage and by adding expected inflation. from 25% to 20% to reflect recent plan experience.  The percent of future non-Medicare and Medicare eligible retirees electing each medical plan Discount rate - The discount rate used to measure the total OPEB liability was 4.12%. The projection of varies by employee bargain unit and changed to reflect updated expectations based on recent plan cash flows used to determine the discount rate assumed that City contributions will be made at rates equal experience. to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary

net position was projected to be available to make all projected future benefit payments of current plan Rate of Return – For the year ended June 30, 2018, the annual money-weighted rate of return on OPEB members. Therefore, the long term expected rate of return on OPEB plan investments was applied to all Trust Fund investments, net of OPEB plan investment expense, was 6.30%. The money-weighted rate of periods of projected benefit payments to determine the total OPEB liability. return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.

122 123 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued) NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued)

Investment Policy – PARS offers different investment portfolios as part of the investment vehicle. The D. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate and Healthcare Cost Trend City invests in the “Balanced/Moderately Aggressive Highmark PLUS” portfolio; the primary goal of the Rates Highmark Plus portfolio is growth of principal and income. The major portions of the assets are invested in the equity securities and market fluctuations are expected. The portfolio is constructed to control risk The following presents the net OPEB liability of the City, as well as what the City’s net OPEB liability through three layers of diversification as follows: would be if it were calculated using the discount rate that is 1-percentage-point lower or 1-percentage point higher than the current discount rate: Acceptable Range of Asset Class Asset Allocation Net OPEB Liability/(Asset) Current Discount Rate -1% Discount Rate Discount Rate +1% Equity 50-70% (3.12 %) (4.12%) (5.12%) Fixed income 30-50% $218,321,924 $187,743,687 $162,834,832 Cash 0-20%

The following presents the net OPEB liability of the City, as well as what the City’s net OPEB liability Investments of the OPEB Trust Fund at June 30, 2018 consisted of $17,422,879 invested in mutual funds. would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower or 1- percentage-point higher than the current healthcare cost trend rates: C. Changes in Net OPEB Liability

The changes in the net OPEB liability follows: Net OPEB Liability/(Asset) Healthcare Cost Trend Current Increase (Decrease) Trend Rates Various - Total OPEB Plan Fiduciary Net OPEB 1% Decrease see assumptions above 1% Increase Liability Net Position Liability/(Asset) $165,359,439 $187,743,687 $215,505,846 (a) (b) (a) - (b)

Balance at June 30, 2017 $191,472,282 $9,336,893 $182,135,389 E. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB Changes Recognized for the Measurement Period:

Service Cost 6,730,397 6,730,397 For the year ended June 30, 2018, the City recognized OPEB expense of $9,971,497. At June 30, 2018, the Interest on the total OPEB liability 7,927,217 7,927,217 Changes in benefit terms City reported deferred outflows and inflows of resources related to OPEB from the following sources: Differences between expected and actual experience (2,816,969) (2,816,969) Changes of assumptions 8,715,168 8,715,168 Deferred Outflows Deferred Inflows Contributions from the employer 13,599,120 (13,599,120) of Resources of Resources Contributions from the employee 765,475 (765,475) Differences between actual and expected experience ($2,265,703) Net investment income 632,089 (632,089) Changes of assumptions $7,009,656 Administrative expenses (49,169) 49,169 Net differences between projected and actual earnings on Benefit payments (1) (6,861,529) (6,861,529) plan investments 44,179 Net changes 13,694,284 8,085,986 5,608,298 Balance at June 30, 2018 (Measurement Date) $205,166,566 $17,422,879 $187,743,687 Total $7,053,835 ($2,265,703)

(1) Benefit payments are comprised of $3,947,832 direct subsidy payments to retirees and $2,913,697 estimated implicit subsidy costs incurred during the measurement period ending 6/30/2018

124 125 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 12 – OTHER POSTEMPLOYMENT BENEFITS (Continued) NOTE 14 – RISK MANAGEMENT (Continued)

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will Excess coverage for the risk categories excluding inverse condemnation is provided by policies with be recognized as part of OPEB expense as follows: various commercial insurance carriers. Self-insurance and insurance company limits are as follows:

Coverage Limit Insurance Carrier Year Annual Type of Coverage Self-Insurance / Deductible Ended June 30 Amortization Earthquake: 10% pre-1970, 5% 2019 $1,165,291 post-1970 of total insured value of 2020 1,165,291 each building; minimum $100,000 Difference in Conditions All others: $25,000 $50,000,000 inclusive of deductible Various 2021 1,165,291 2022 1,165,290 National Union Fire Crime/Employee Dishonesty $2,500 per claim $15,000,000 inclusive of deductible Insurance Company 2023 126,969 $400,000,000 inclusive of deductible Thereafter $25,000 per claim; except flood $100,000,000 limit for flood all zones, zones A&V that have a deductible except zones A & V, which have a limit of NOTE 13 – DEFERRED COMPENSATION PLAN Property of $250,000 $50,000,000 Various Boiler and Machinery $25,000 per claim $100,000,000 inclusive of deductible Various City employees may defer a portion of their compensation under a City sponsored deferred compensation plan created in accordance with Internal Revenue Code Section 457. Under this plan, participants are not Port Liability $25,000 per claim $50,000,000 inclusive of deductible Various taxed on the deferred portion of their compensation until distributed to them; distributions may be made $1,000,000 per occurrence; $2,000,000 Special Events Program N/A aggregate Evanston Insurance only at termination, retirement, death or in an emergency as defined by the plan. Excess Workers' Compensation $750,000 per claim Statutory limit Various The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the Student Volunteer N/A $50,000 limit Ace American exclusive benefit of plan participants and their beneficiaries. Since the assets held under this plan are not the City’s property and are not subject to claims by general creditors of the City, they have been excluded from Pollution Liability - Policy 1 $250,000 per claim $20,000,000 inclusive of deductible ACE - Illinois Union these financial statements. $5,000,000 limit Pollution Liability - Policy 2 $75,000 per claim Illinois Union

NOTE 14 – RISK MANAGEMENT Cyber Liability $100,000 per claim $2,000,000 limit Lloyds of London CJPRMA The City is exposed to various risks of loss related to theft of, damage to, and destruction of assets; general liability; errors and omissions; injuries to employees; natural disasters; and inverse The CJPRMA provides coverage against the following types of loss risks under the terms of a joint powers condemnation. The City began self-insuring its workers’ compensation in 1976. In July 2009 the City agreement with the City as follows: joined the California Joint Powers Risk Management Authority (CJPRMA) for general liability and employment practices coverage. In April 2009 the City joined the California State Association of Counties Type of Coverage (Deductible) Excess Insurance Authority (CSAC EIA) for worker’s compensation insurance. The City has chosen to Coverage Limits establish a risk financing internal service fund where assets are accumulated for claim settlements and Property ($25,000) $400,000,000 expenses associated with the above risks of loss up to certain limits. Liability ($500,000) $40,000,000 Employment Practices ($500,000) $5,000,000

Once the self-insured retention is exhausted on each claim, CJPRMA becomes responsible for payment of future expenses related to the claim. The City paid contributions of $932,564 for the year ended June 30, 2018. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to member entities on a percentage basis after a retrospective rating.

Audited financial statements for the CJPRMA are available from CJPRMA, 3201 Doolan Road, Suite 285, Livermore, CA 94551.

126 127 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 14 – RISK MANAGEMENT (Continued) NOTE 14 – RISK MANAGEMENT (Continued)

CSAC-EIA Liability for Self Insured Claims

CSAC-EIA is a public entity risk pool of cities and counties within California. The CSAC-EIA provides The City records a liability to reflect an actuarial estimate of ultimate uninsured losses for both general workers’ compensation coverage up to the statutory limit and the City retains a self-insured retention of liability claims (including property damage claims) and workers’ compensation claims. The estimated $750,000. Loss contingency reserves established by the CSAC-EIA are funded by contributions from liability for workers’ compensation claims and general liability claims is based on case reserves and member agencies. The City pays an annual contribution to the CSAC-EIA, which includes its pro-rata share include amounts for claims incurred but not reported (IBNR), and is recorded in the Insurance Reserves of excess insurance premiums, charges for pooled risk, claims adjusting and legal costs, and administrative Internal Service Fund. At June 30, 2018, the estimated claims payable of $37,707,574 consisting of and other costs to operate the risk pool. The City paid contributions of $342,738 for the year ended June 30, reserves for both reported and IBNR losses, as well as allocated loss adjustment expenses, have been 2018. CSAC-EIA provides insurance through the pool up to a certain level, beyond which group purchased recorded in the Insurance Reserves Internal Service Fund. The claims payable are reported at their commercial excess insurance is obtained. CSAC-EIA is currently fully funded. No provision has been made present value using expected future investment yield assumptions of 3% and an 80% confidence level. on these financial statements for liabilities related to possible additional assessments. The undiscounted claims totaled $36,228,359 at June 30, 2018. Changes in the claims liabilities for the years ended June 30, 2018 and 2017 were as follows: Audited financial statements for CSAC-EIA are available from CSAC-EIA, 75 Iron Point Circle, Suite 200, Folsom, CA 95630. 2018 2017

Housing Authority Insurance Group Claims liabilities, beginning of year $36,528,414 $39,403,229 The Housing Authority is exposed to various risks of loss related to torts: theft, damage, and destruction Current year claims 10,536,000 10,014,000 of assets; errors and omissions; injuries to employees and natural disaster. The Authority joined together Change in prior year claims 2,518,288 (1,277,997) with other entities and participates in the Housing Authority Insurance Group, a public entity risk pool Claim payments (6,694,998) (8,108,630) currently operating as a common risk management and insurance program for its member entities. The Legal, administrative and other expenses (5,180,130) (3,502,188) purpose of the Housing Authority Insurance Group is to spread the adverse effects of losses among the member entities and to purchase excess insurance as a group, thereby reducing its cost. The Authority pays annual premiums to Housing Authority Insurance Group for its property damage insurance as Claims liabilities, end of year $37,707,574 $36,528,414 follows: Claims liabilities, due in one year $11,120,445 $10,648,489 Building and

Personal Annual For the years ended June 30, 2018, 2017 and 2016 the amount of settlements did not exceed insurance Property Property Premium Premium Deductible coverage. Nevin Plaza (#1) $6,106 $6,230 $25,000 Nystrom Village 22,144 22,807 25,000 Administration Office 902 902 25,000 NOTE 15 – SEGMENT INFORMATION FOR ENTERPRISE FUNDS Hacienda 17,544 21,930 5,000

The City’s non-major enterprise funds include the following: All of the Housing Authority properties are included in the general liability coverage under the CJPRMA program.  Richmond Marina Fund – Marina operations and maintenance, including berth rentals and use of marina facilities.  Storm Sewer Fund – Storm sewer management and urban runoff control.  Cable TV Fund – Administration and enforcement of the franchise agreements with two cable television systems, management of a municipal cable channel, departmental video services, media and public information, and telecommunications planning.

128 129 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 15 – SEGMENT INFORMATION FOR ENTERPRISE FUNDS (Continued) NOTE 16 – COMMITMENTS AND CONTINGENCIES

Fiscal 2018 condensed financial information for the Richmond Marina Enterprise Fund is as follows: A. Lease and Construction Commitments

Condensed Statement of Net Position The Police Department occupies leased premises owned by DiCon Fiberoptics, Inc. The City’s original Assets: lease was a three year lease which expired on December 31, 2009, and it had an option to renew for five Current assets $3,898,056 (5) one year periods until December 31, 2014. In October 2014, the City and DiCon Fiberoptics, Inc. Capital assets 1,469,256 entered into a new five year lease extension with the term commencing January 1, 2015 through Total assets 5,367,312 December 31, 2019, with an option to renew for five (5) one year periods until December 31, 2024. The lease calls for minimum monthly lease payments of $142,805. Liabilities: Current liabilities 280,777 The Richmond Municipal Sewer District occupies leased premises owned by West County Wastewater Long-term liabilities 2,527,227 District. The City’s original lease was a two year lease which expired on December 31, 2012, with an Total liabilities 2,808,004 option to renew for one (1) three year period and one (1) two year period until December 31, 2017. In Net position: January 2017, the City and West County Wastewater District entered into a first amendment to the Net investment in capital assets (1,063,279) ground lease with four possible extensions for terms commencing January 1, 2016 through December 31, Unrestricted 3,622,587 2017; January 1, 2018 through December 31, 2020; and January 1, 2021 through December 31, 2025. Total net position $2,559,308 The lease calls for minimum monthly lease payments of $195,383.

Condensed Statement of Revenues, Expenses and The City’s future commitments under construction and other projects totaled approximately $199 million Changes in Net Position at June 30, 2018 for various projects. Operating revenues: Lease income $537,438 B. Litigation Operating expenses: General and administrative (24,406) The City is involved in various claims and litigation resulting from its normal operations. The ultimate Maintenance (99,419) outcome of these matters is not presently determinable. In City management’s opinion these matters will Depreciation (85,563) not have a significant adverse effect on the City’s or RHA Properties’ financial position, with two potential Operating income 328,050 exceptions noted below: Nonoperating revenues (expenses): Interest income 35,919 In March 2012, a developer and an associated entity filed a complaint in federal court against the United Interest expense (118,054) States of America, two individuals, and the City contending breach of contract related to a Land Disposition Income (Loss) Before Contributions and Transfers 245,915 Agreement (LDA) between the developer and the City for the development of City-owned property for a Transfers out (86,778) specific use. The developer and associated entity seek damages of $30 million as well as lost profits of over Change in net position 159,137 $750 million. The City disputes the allegations and contends that the LDA did not commit the developer or Beginning net position 2,400,171 the City to develop the property for the specific use and that the developer’s right to move forward with the Ending net position $2,559,308 development was subject to various federal approvals. The City received a favorable judgement on the matter, but an appeal by the developer and associated entity resulted in the Ninth Circuit reversing the Condensed Statement of Cash Flows decision, concluding the plaintiffs should be given another opportunity to amend their complaint. The Net cash provided (used) by: plaintiffs filed an amended complaint and the City answered, denying the plaintiffs’ allegations and Operating activities $411,803 asserting affirmative defenses and counterclaims. In April 2018, the City again received a favorable Noncapital and related financing activities (86,778) judgement on the matter under which the City will pay no monetary damages to the developer and the Capital and related financing activities (231,293) developer’s claims were dismissed. Under the terms of the judgment, future proceeds from the sale of the Investing activities 31,733 property will be shared equally between the City and the developer. However, the judgment is being Net increase 125,465 challenged by an environmental rights group. The City may be negatively impacted should the court rule Beginning cash and investments 3,690,856 in favor of the group, however any such impact cannot be determined at this time. Ending cash and investments $3,816,321

130 131 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)

C. Grant Programs Neighborhood Stabilization Program (NSP1)

The City participates in several federal and State grant programs. These programs are subject to further During fiscal year 2014, the City was subject to a monitoring visit from the Office of Inspector General of examination by the grantors and the amount, if any, of expenditures which may be disallowed by the the City’s Neighborhood Stabilization Program (NSP1) and received notification in October 2014 from granting agencies cannot be determined at this time, except as noted under Grant Programs – Disallowed HUD that it was demanding the repayment of $914,090 for ineligible expenses. In lieu of making a Costs below. payment to HUD for the return of the ineligible costs, in November 2014, the City requested a grant reduction of $595,863 in unspent NSP1 funds to be applied towards the finding. In addition, the City D. Grant Programs – Disallowed Costs requested approval to use the proceeds from income generated from the pending sale of certain NSP1 properties to make up the $318,227 difference. Given that the NSP1 is governed by CDBG regulations, HOME and CDBG Programs the City believes that HUD’s Voluntary Grant Reductions in Lieu of Repayment for Ineligible CDBG and HOME Activities “Program” applies to NSP1. In July 2016, HUD notified the City that it could make a During fiscal year 2013, the City was subject to two separate monitoring visits by the Department of request for a Voluntary Grant Reduction of $595,863 in unspent NSP1 funds to be applied towards the Housing and Urban Development (HUD) of the City’s HOME investment partnership (HOME) and NSP1 repayment obligation. If the request was made, the remaining $318,227 would be due within 90 Community Development Block Grant (CDBG) activities. In its reports, HUD listed thirteen findings days. In August 2016, the City made a second request for the approval of a Voluntary Grant Reduction of covering various activities performed over a six year period applicable to the programs and disallowed $595,863 in unspent NSP1 funds and for the remaining $318,227 to be paid using the proceeds from costs approximating $2.4 million. income generated from the sale of NSP1 properties. In December 2016, the City accepted HUD’s repayment terms regarding the treatment of the ineligible costs of $318,227, which are due in two The City prepared responses to the findings, including assembling and providing additional payments in fiscal year 2017 ($62,645) and fiscal year 2018 ($255,762). The first NSP1 repayment documentation to HUD as well as performing numerous corrective actions and meetings to negotiate obligation installment of $62,645 was paid in March 2017 and the final repayment obligation installment settlements with HUD. In July 2016, HUD determined the City’s repayment obligation to be $366,063, of $225,762 was paid in September 2017. $786,597, and $1,807,490 for CDBG-R, CDBG and HOME, respectively. Housing and Urban Development In August 2016, the City requested a Voluntary Grant Reduction in the amount of $1,807,409 in unspent HOME funds to be applied toward the obligation in lieu of making payments to HUD. In addition, the On June 3, 2016, the Office of the Inspector General issued a report in response to an allegation that the City also requested a Voluntary Grant Reduction of $85,000 in unspent CDBG funds to be used towards Authority allowed the City to use HUD funds and Authority assets and that the City charged the the $786,597 repayment obligation. However, if the City elected to make this request, all remaining Authority for rent and services at an unreasonable price. The report concluded that the allegations held obligations would be due within 90 days. Alternatively, the City requested a payment plan with merit and the Authority misspent $2.2 million in HUD funds and had $994,910 in unsupported costs due installments over a three-year period for the remaining CDBG and CDBG-R funds. to a lack of independence between the Authority and the City along with a weak internal control environment. The OIG recommended that the Director of the San Francisco Office of Public Housing In December 2016, HUD accepted the City’s repayment terms regarding the treatment of the ineligible that monitors the Authority, require the Authority to repay $2.1 million for ineligible use of HUD funds costs for the CDBG repayment obligation of $786,597, which is payable in two equal installments in along with $53,347 for duplicate charges, and $60,000 for a City initiated management audit. In addition, fiscal years 2018 and 2019. The first installment of the CDBG repayment obligation of $393,298.25 was it was suggested the Authority be required to provide additional support for $80,890 of the Executive paid in September 2017 and the final installment in the amount of $393,298 is due in September 2018. In Director's salary spent on activities, $180,000 spent on office rent, determine proper use of former HUD’s January 2017 close-out letter, HUD accepted the Voluntary Grant Reductions for HOME maintenance building property, and develop and implement financial policies and procedures for the ineligible costs and the City's remaining grant funds were applied against the ineligible costs, reducing the current operating environment. Further, it was recommended that HUD work with the Authority to City's repayment obligation under the HOME program to zero. The CDBG-R repayment obligation of improve control and accountability including HUD receivership and separating the Authority finances $366,063 was paid in full in March 2017. The City received another Voluntary Grant Reduction approval from the City. The Authority contested several of the conclusions made by the OIG. Although Authority in August 2017 from HUD of $86,231 to be applied against CDBG ineligible costs, reducing the total management strongly believed in its response made to OIG that the Authority’s actions were proper and CDBG obligation to $700,365. The reduction will be applied to the final installment payment in agreed to in advance by HUD, Authority and City staff have concluded that neither the participants in the September 2018 of $307,067. Since HUD moved all the findings to a close, after fiscal year 2019, the Authority’s programs or the residents of the City will be well served by continued discord with HUD City will be free and clear of any obligation to HUD. distracting from program improvements. Accordingly, City, Authority and OIG staff have negotiated a settlement agreement among the City, Authority and HUD whereby the City agrees to return $2.1 million to the Authority’s accounts (as opposed to returning the funds to the U.S. Treasury) and limit the use of those funds to specific categories identified by HUD. The settlement agreement was approved by City Council in March 2018 and fully executed in April 2018. The General Fund returned the $2.1 million to the Housing Authority during fiscal year 2018, as discussed in Note 4B.

132 133 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)

E. Housing Authority – Easter Hill Project F. RHA Properties – Status of Operations

The Authority participates in a number of federally assisted grant programs, principal of which are the RHA Properties having sold Westridge at Hilltop Apartments is at the point of being an entity with no Section 8 Housing Assistance and the HOPE VI Revitalization Grant. It is possible that at some future activity. It is idle and available to be used in the future. Management currently has no further plans for the date, it may be determined that the Authority is not in compliance with applicable grant requirements. The entity. amounts, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the Authority does not expect such disallowed amounts, if any, to materially affect G. Point Molate – Pollution Remediation the financial statements. In September 2008, the City entered into an Early Transfer Cooperative Agreement (ETCA) with the In June 2000, the Richmond Housing Authority received a $35 million grant (HOPE VI Grant) from the United States Department of the Navy the (Navy) to facilitate the transfer of 41 acres of property that was U.S. Department of Housing and Urban Development (“HUD”) for the revitalization of the former Easter formerly the Naval Fuel Depot Point Molate (Point Molate). The ETCA identifies certain known pollution Hill Public Housing Project. The original Easter Hill site, owned by the Richmond Housing Authority, issues with the property, and the Navy is the responsible party. However, under the provisions of the included 300 units on 21 acres in the Cortez/Stege neighborhood of Richmond. ETCA, the Navy advanced $28 million to the City representing the estimated cost of cleanup, and the City committed to manage the project. Any pollution found that was not caused by the Navy’s use of the land is The California Tax Credit Committee, City of Richmond, Bank of America, Silicon Valley, Federal to be paid by the City, however, as of June 30, 2018, no additional pollution has been identified. Home Loan Bank, California Housing Finance Agency, the Richmond Housing Authority along with the $35 million dollar HUD grant financed this $120 million revitalization effort. Physical costs are estimated The City also entered into an agreement in September 2008 with a Developer to sell approximately 134 to be approximately $108 million and life services, relocation, acquisition, administrative and other costs acres of land located on Point Molate along with the 41 acres of which the Navy is to transfer to the City. are estimated to be approximately $12 million. The physical development includes approximately 320 The Developer is to complete the cleanup on behalf of the City in accordance with the requirements of the rental and homeownership units to replace the 300 rental units originally at the site and 273 remaining ETCA. The City committed to pass-through the funds received from the Navy to the Developer. units at the time of grant approval. Amenities at the revitalized site include a pool and a 5,000 square feet community room with facilities for an after school program, computer center, gymnasium and conference In April 2010, the City and Developer entered into an agreement to establish a fiscal agent escrow account room. to maintain the funds held for the remediation of Point Molate. The funds advanced by the Navy are to be held in escrow with a fiscal agent and the agent is responsible for disbursing funds to the Developer as costs In addition, pursuant to the same agreement, the Authority is entitled to receive reimbursement for certain are incurred. The terms of the agreement are effective until a certificate of completion is issued for the costs it has incurred in development of these projects. Upon completion of the project, the Authority remediation of the property. recorded $14,276,909, representing reimbursement from the developer which had been recorded in the accompanying financial statements as due from developer. The balance outstanding as of June 30, 2018 is Under the terms of the agreements with the Navy and the Developer, the City does not retain $11,221,743. responsibility for the cleanup of the known pollution. The City is merely acting as a pass-thru of the grant funds from the Navy to the Developer and the activities for the project are reported in the Pt. Molate In 2002, the Authority chose the development team of McCormack Baron Salazar, Inc. and Em Johnson Private-Purpose Trust Fund. Interest, Inc. to develop the site. Em Johnson Interest has developed the 82 homeownership units affordable to low, moderate and market rate buyers. McCormack Baron was charged with the H. Other – Major Taxpayer development of 300 rental units, affordable to households 60% or below the area median income for Contra Costa County. In fiscal year 2009, a major business license taxpayer filed a complaint challenging the legality of Measure T, a voter initiative that took effect on January 1, 2009. Measure T amended the City’s business Thus far, all new construction rental units at the former Easter Hill site have been developed. Thirty-six license tax calculation for manufacturers. Although the City believed Measure T to be lawful, the court rehab rental units at the site have been constructed. The remaining 202 rental units at the site have been ruled on December 17, 2009 that the tax was unconstitutional. The court ruled in favor of the business leased. Similarly, all 82 homeownership units at the former Easter Hill and Cortez sites have been license taxpayer awarding a refund of the $20.5 million Measure T taxes paid. The City filed an appeal, constructed. All homeownership units have been sold. however in May 2010 the taxpayer and the City entered into a settlement agreement in order to achieve certainty in the tax revenue that the City will receive from the taxpayer over the next 15 years. The Due to the City Council’s action to not allow the Authority to retain the Fire Training site originally agreement provides for annual payments from the taxpayer ranging from $4 million to $13 million anticipated for phase III of the project, the third phase is being revised to include the Authority’s Nystrom starting July 1, 2011, with payments totaling $114 million. In addition, the agreement incorporated the Village and Hacienda Public Housing sites. This will include the demolition and reconstruction of the 252 prior settlement of a dispute over fiscal year 2006, 2007 and 2008 utility user’s taxes totaling $28 million rental units presently existing at the two sites. As the proposal and conceptual plans are being developed, that was paid in four installments beginning in fiscal year 2009. Payments totaling $75 million were the final financial and construction plans are not determined at this time. received under the settlement agreements in fiscal years 2011 through 2018.

134 135 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)

In fiscal year 2015, the City entered into an Environmental Community Investment Agreement (ECIA) RHA RAD Housing Partners L.P. will also receive $732,557 in Public Housing and Capital Improvement with the same taxpayer that provides for funding to the City and other community agencies totaling $80 funds throughout the January 1, 2016 – December 31, 2016 calendar year to cover the RAD Housing million over the next ten years. During fiscal year 2018, the City received $9 million that is restricted for Assistance Program (HAP) Voucher commitments of subsidy for the low income housing units at the two use on pre-approved projects, and the City has received $26 million to date. developments. The terms of this requirement are consistent with Notice 2012-32 of the Rental Assistance Demonstration program which requires RAD conversions that close after November 30th of the calendar I. Police Communications Systems year to be funded out of Public Housing and Capital Fund Programs until the next calendar year, at which time the Developments will be funded with Section 8 Housing Choice RAD Vouchers. The City administered program to provide records management and dispatch services to participating local agencies. The participating agencies, which include the City, are responsible for maintenance and system In a transaction related to the RAD project during the fiscal year ended June 30, 2016, the Richmond enhancements. The City is required to account for the enhancement in a separate account which is shown Housing Authority transferred capital assets to RHA RAD LLC, which then sold the capital assets to RHA in the Police Telecommunications Internal Service Fund as unearned revenue as of June 30, 2018. The RAD Housing Partners LP with a carrying value of $14,358,255 in return for two loans receivable in the program dissolved effective June 30, 2017. The distribution of the funds the City holds for enhancement amounts of $8,891,500 and $5,618,500. These loans are to be repaid in 55 years and bear annual interest from all participating agencies began in fiscal year 2018 and will be completed by fiscal year 2020. rates of 2.82%.

J. Housing Authority Rental Assistance Demonstration K. Marina Bay – Pollution Remediation

RHA Rental Assistance Demonstration (“RAD”) Program conversion of the Friendship Manor and The Successor Agency owned a group of land tracts collectively referenced as the “Nine Deed Restricted Triangle Court public housing sites occurred during the 2016 calendar year (includes both the 2015 and Properties.” The Successor Agency was named as a responsible party at these sites under a Voluntary 2016 fiscal years). The RAD project consists of 156 units of Public Housing will that were converted to Cleanup Agreement with the State Department of Toxic Substances Control (DTSC) to conduct pollution non-profit ownership with Section 8-Project Based Voucher rental subsidy on the two separate properties; monitoring and remediation. However, the Successor Agency received approval from the DOF to transfer all 156 units, except for three units (two are reserved for onsite managers and one for a manager's office), the properties and their maintenance to the City at June 30, 2016. Therefore, the City is now the will be used to house low-income residents. responsible party at the sites. These nine properties sit within the larger Marina Bay development site. A Remediation Action Plan (RAP) was prepared for Marina Bay in 1993 and included references to each of On October 8, 2015, the Department of Housing and Urban Development (HUD) issued and executed the the Deed Restricted Properties. Eight of the nine deed restricted properties are subject to an Operations & RAD Conversion Commitment (RCC) which represents the agreed upon and approved terms of the RAD Maintenance (O&M) Plan. The O&M Plans require annual inspections of the cap material and reporting conversion transaction. of the findings to DTSC. The O&M Plans also require that a five-year review report be prepared and submitted to DTSC. The five-year review reports describe the inspection and maintenance activities that On November 18, 2015, California Tax Credit Allocation Committee made a preliminary reservation of were performed over the previous five years. The annual monitoring costs are estimated at $8,700, with federal tax credits in the amount of $1,228,999 accommodated upon executing Tax-Exempt Bond Project to the five year review estimated at $45,000. The monitoring costs over a five year period are estimated at raise funding in the amount of $36.7 million, the approximate estimated cost of the RAD project; of which $88,500. $16.5 million shall be provided by a third-party Tax Credit investor. The RAP was subsequently amended in 2008 to address Area T, one of the Nine Deed Restricted The Authority has partnered with the John Stewart Company and The Richman Group to form a Limited Properties. The amended RAP subjects the site to groundwater sampling, analysis, and remediation. The Partnership, RHA RAD Housing Partners L.P., that will complete the conversion, manage the property and approximate annual costs for the existing groundwater sampling, analysis and remediation program is own the buildings. The Authority will relinquish the land via a long term ground lease. approximately $89,000. The known pollution at this site is a layer of petroleum hydrocarbons above groundwater and petroleum hydrocarbons dissolved in groundwater. Active remediation has been In furtherance of the finances provided by the Authority, the City of Richmond loaned $5.4 million to RHA conducted since September 2008 by the former Redevelopment Agency and now by the Successor RAD Housing Partners L.P. that will be repaid in 55 years and accrues interest at a rate of 1%. The loan Agency. DTSC requested that the Successor Agency submit a work plan describing the methods to was initially signed with RHA Housing Corporation and then it was transferred and reassigned to RHA enhance the recovery of free product and dissolved petroleum hydrocarbons at Area T. The Successor RAD Housing Partners L.P., as discussed in Note 5. Agency submitted a Work Plan for Enhancement of Groundwater Remediation Program to DTSC in March 2015 (Work Plan). DTSC approved the Work Plan in April 2015. The cost to implement the After the property is placed in service and receives approval of the 8609 documents from the State of enhanced groundwater remediation program is estimated at $133,000. This preliminary estimate has not California, the Authority will split a developer fee of $2.5 million with its general partner John Stewart been accrued as a liability in the City’s Statement of Net Position. This estimate is also subject to change Company (70%/30%). The project has not converted to permanent financing due to unforeseen delays, from price increases or reductions, technology, and changes in applicable laws or regulations. however the anticipated closing date will be in September 2019, so the majority of the fee will not be received until after that date.

136 137 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) L. Other Commitments and Contingencies ABx1 26 and AB1484 created three regulatory authorities, the Successor Agency Oversight Board, State The Authority and its component units RHA Housing Corporation and RHA RAD LLC entered into Controller and Department of Finance (DOF), to review former Agency’s asset transfers, obligation payments several arrangements including a Co-Guarantor Contribution Agreement with third parties as participants and wind down activities. ABx1 26 specifically directs the State Controller to review the activities of all in a tax credit bonds project to accommodate the required funding to convert two properties from a redevelopment agencies to determine whether an asset transfer between an agency and any public agency conventional public housing project to a rental assistance demonstration program, as discussed in Note occurred on or after January 1, 2011. If an asset transfer did occur and the public agency that received the 16J. asset is not contractually committed to a third party for the expenditure or encumbrance of the asset, the legislation purports to require the State Controller to order the asset returned to the Redevelopment Agency or, M. Encumbrances on or after February 1, 2012, to the Successor Agency. The State Controller’s Office completed its asset transfer review in November 2013 and the State ordered the return of certain assets to the Successor Agency to The City uses an encumbrance system as an extension of normal budgetary accounting for governmental the Redevelopment Agency. The City complied with certain aspects of the State’s order during fiscal year funds. Under this system, purchase orders, contracts, and other commitments for the expenditure of 2013 by returning applicable capital assets to the Successor Agency and the Oversight Board retroactively monies are recorded in order to reserve that portion of applicable appropriations. Encumbrances approved other prior transfers to the City and the State has indicated that no further action is necessary. The outstanding at year-end are recorded as restricted, committed or assigned fund balance, depending on the State also ordered the return of assets previously transferred to the City as Housing Successor totaling classification of the resources to be used to liquidate the encumbrance, since they do not constitute $16,460,848, because the transfer of the housing assets had not been approved by the Oversight Board. The expenditures or liabilities. Outstanding encumbrances at year-end are automatically reappropriated for Oversight Board adopted a Resolution on February 25, 2014 retroactively approving the transfer of the loans to the following year. Unencumbered and unexpended appropriations lapse at year-end. Encumbrances the Housing Successor. outstanding as of June 30, 2018 were as listed below: Effective January 31, 2012, the Redevelopment Agency was dissolved. Certain assets of the Redevelopment Amount Agency Low and Moderate Income Housing Fund were distributed to a Housing Successor; and the remaining General Fund $72,506 Redevelopment Agency assets and liabilities were distributed to a Successor Agency. Community Development and Loan Programs Under the provisions of AB 1484, the City can elect to become the Housing Successor and retain the housing Special Revenue Fund 2,372,904 assets. The City elected to become the Housing Successor and on February 1, 2012, certain housing assets Non-Major Governmental Funds 3,220,831 were transferred to the City’s Low and Moderate Income Housing Fund which is included in the Community $5,666,241 Development and Loan Programs Special Revenue Fund. The activities of the Housing Successor are reported in the Low and Moderate Income Housing Asset Fund as the City has control of those assets, which may be

used in accordance with the low and moderate income housing provisions of California Redevelopment Law. NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES The City also elected to become the Successor Agency and on February 1, 2012 the Redevelopment Agency’s A. Redevelopment Dissolution remaining assets were distributed to and liabilities were assumed by the Successor Agency. ABx1 26 requires

the establishment of an Oversight Board to oversee the activities of the Successor Agency and one was In an effort to balance its budget, the State of California adopted ABx1 26 on June 28, 2011, amended by established in April 2012. As of July 1, 2018, Contra Costa County has formed a county-wide Oversight AB1484 on June 27, 2012, which suspended all new redevelopment activities except for limited specified Board to oversee the activities of all Successor Agencies within the County, including Richmond. The activities as of that date and dissolved redevelopment agencies on January 31, 2012. activities of the Successor Agency are subject to review and approval of the Oversight Board, which is

comprised of seven members, including one member of City Council and one former Redevelopment Agency The suspension provisions prohibit all redevelopment agencies from a wide range of activities, including employee appointed by the Mayor. incurring new indebtedness or obligations, entering into or modifying agreements or contracts, acquiring or disposing of real property, taking actions to adopt or amend redevelopment plans and other similar actions, AB1484 required the Successor Agency to complete two due diligence reviews – one for the low and except actions required by law or to carry out existing enforceable obligations, as defined in ABx1 26. moderate income housing assets of the Successor Agency (Housing DDR), and a second for all other balances of the Successor Agency (Non-housing DDR). The due diligence reviews were to calculate the balance of unencumbered balances as of June 30, 2012 available to be remitted to the County for disbursement to taxing entities. The Successor Agency submitted both due diligence reviews to the State Department of Finance for review and approval. The Department of Finance approved the Housing DDR, after making an adjustment, and the Successor Agency remitted the unencumbered balance of $4,067,242 to the County in November 2014. The Department of Finance approved the Non-housing DDR in December 2014, and no funds were required to be remitted to the County. The Successor Agency received a Finding of Completion on December 9, 2014.

138 139 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

The activities of the Successor Agency are reported in the Successor Agency to the Richmond Community D. Long-term Obligations Redevelopment Agency Private-Purpose Trust Fund as the activities are under the control of the Oversight Board. The City provides administrative services to the Successor Agency to wind down the affairs of the The following is a summary of long-term debt transactions during the fiscal year ended June 30, 2018: former Redevelopment Agency. Balance Balance Due Within Due in More Cash and investments of the Successor Agency as of June 30, 2018 are discussed in Note 3 above. July 01, 2017 Additions (A) Retirements (B) June 30, 2018 One Year than One Year Bonds payable $68,290,709 $1,049,052 ($7,011,549) $62,328,212 $6,970,000 $55,358,212 Information presented in the following footnotes represents other assets and liabilities of the Successor Loans payable 22,515,000 (875,000) 21,640,000 925,000 20,715,000 Agency as of June 30, 2018. Notes payable 10,962,412 (325,575) 10,636,837 332,087 10,304,750 Total $101,768,121 $1,049,052 ($8,212,124) $94,605,049 $8,227,087 $86,377,962 B. Loans Receivable (A) Includes bond accretion for capital appreciation bonds totaling $1,049,052. The Successor Agency assumed non-housing loans receivable of the Redevelopment Agency as of (B) Retirements of bonds payable includes principle retirements in the amount of $6,700,000 and amortization of bond premium February 1, 2012. The Redevelopment Agency engaged in programs designed to encourage economic in the amount of $311,549. development. Under these programs, grants or loans were provided under favorable terms to developers who agreed to expend these funds in accordance with the Agency’s terms. Bonds Payable

Ford Assembly Building Loan Bonds payable at June 30, 2018 consisted of the following:

Under a loan agreement dated November 22, 2004 between the Redevelopment Agency and Ford Point Net LLC, the Redevelopment Agency agreed to loan $3,000,000 to fund improvements to the Ford Assembly Harbour Tax Allocation Refunding Bonds - 1998 Series A $6,093,799 Building, collateralized by a Deed of Trust. After a period of variable interest rates, the loan has Subordinate Tax Allocation Bonds - 2007 Series B 12,149,027 converted to a fixed 5% interest rate. Interest and principal payments are due semi-annually through Subordinate Tax Allocation Refunding Bonds - 2010 Series A 25,235,000 2025. The balance of the loan was $1,574,000 as of June 30, 2018. Successor Agency of RCRA Refunding Bonds - 2014 Series A & B 18,850,386 Total $62,328,212 C. Capital Assets

The Successor Agency assumed the non-housing capital assets of the Redevelopment Agency as of 1998 Harbour Redevelopment Project Tax Allocation Refunding Bonds Series A – Original Issue February 1, 2012. All capital assets are valued at historical cost or estimated historical cost if actual $21,862,779 historical cost is not available. Contributed capital assets are valued at their estimated fair market value on the date contributed. The Successor Agency’s policy is to capitalize all assets with costs exceeding certain The bonds were issued by the Agency to refinance a portion of the 1991 Harbour Redevelopment Project minimum thresholds and with useful lives exceeding two years. Tax Allocation Refunding Bonds, refinance certain loans from the City to the Agency, which were used by the City to finance certain publicly owned capital projects, finance certain redevelopment activities There were no additions or retirements during fiscal year 2018 and capital assets recorded at June 30, within the Harbour Redevelopment Project Area, fund a reserve account and pay certain costs of issuance 2018 include land and improvements with a balance of $4,313,167. of the 1998 bonds. The bonds mature annually through 2023, in amounts ranging from $50,000 to $1,130,000. Interest rates vary from 3.5% to a maximum of 5.2% and are payable semiannually on January 1 and July 1. The bonds are secured by a pledge of tax revenues derived from taxable property within the Harbour Project Area. On March 27, 2014, the Agency issued the Successor Agency to the Richmond Community Redevelopment Agency Refunding Bonds 2014 Series A & B which resulted in the defeasance of the outstanding balance of the current interest portion of the bonds in the amount of $9,180,000, as discussed below.

140 141 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

At June 30, 2018, the Bonds consisted of the following: On July 12, 2007 the Redevelopment Agency issued Series 2007B Housing Set-Aside Subordinate Tax Allocation Capital Appreciation Bonds in the amount of $9,772,622 at interest rates ranging from 5.57% Unamortized to 6.40%. The proceeds from the 2007B Bonds will be used to finance certain low and moderate income Accretion/ Premium housing activities of the Redevelopment Agency. The 2007B Bonds mature annually through 2037, in Value Amortization (Discount) Net amounts ranging from $465,000 to $2,020,000. The 2007B Bonds are secured by a pledge of Capital appreciation bonds $6,900,000 $303,418 ($1,109,619) $6,093,799 subordinated housing and non-housing tax revenues.

The annual debt service requirements on the bonds are as follows: At June 30, 2018, the 2007B Bonds consisted of the following: For the Years Unamortized Ending June 30, Principal Accretion/ Premium 2019 $1,150,000 Maturity Value Amortization (Discount) Net 2020 1,150,000 Capital appreciation bonds $19,920,000 $745,634 ($8,516,607) $12,149,027 2021 1,150,000 2022 1,150,000 The annual debt service requirements on the 2007B Bonds are as follows: 2023 1,150,000 2024 1,150,000 For the Years Total $6,900,000 Ending June 30, Principal 2019 $990,000 Richmond Community Redevelopment Agency Subordinate Tax Allocation Bonds Series 2007A 2020 1,040,000 and Series B - Original Issue Series A $65,400,000, Series B $9,772,622 2021 1,415,000

2022 1,030,000 On July 12, 2007 the Redevelopment Agency issued Series 2007A Subordinate Tax Allocation Bonds in the amount of $65,400,000. The proceeds from the Bonds were used to pay the amount of $22,000,000 2023 1,085,000 to the City to assist with the financing of the Civic Center Project, and to fund other Redevelopment 2024-2028 6,855,000 Agency projects. 2029-2033 4,165,000 2034-2037 3,340,000 The 2007A Subordinate Tax Allocation Bonds were issued as variable auction rate bonds with interest Total $19,920,000 calculated every thirty-five days, however, the Agency entered into a 29-year interest rate swap agreement for the entire amount of its 2007A Subordinate Tax Allocation Bonds. In fiscal year 2010 the Agency experienced a significant decline in tax increment revenue. In order to bring debt service in line 2010 Subordinate Tax Allocation Refunding Bonds Series A – Original Issue $33,740,000 with current revenues and maintain compliance with the required 1.4:1 tax increment to debt service coverage ratio, the Agency suspended a number of projects originally funded by the 2007A Bonds and The 2010A Bonds were issued on March 31, 2010 by the Agency. The proceeds of the 2010A Bonds applied approximately $36 million of the unspent 2007A proceeds and other available funds along with were used to refund all of the outstanding Series 2007A Subordinate Tax Allocation Bonds. Interest rates the proceeds from the issuance of the Subordinate Tax Allocation Refunding Bonds, Series 2010A to range from 3.00% to 6.125% and are payable semiannually on March 1 and September 1. The 2010A refund the outstanding balance of the 2007A Bonds. As part of the issuance of the 2010A Bonds, the Bonds mature annually through 2037 and are secured by a pledge of certain tax increment revenues interest rate swap agreement associated with the 2007A Bonds was amended and restated as discussed derived from taxable property within the Merged Project Area. with the Series 2010A Bonds below.

142 143 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

In connection with the issuance of the Series 2007A Subordinate Tax Allocation Bonds, the Agency Based on the swap agreement, the Agency owes interest calculated at a variable rate to the counterparty entered into a swap agreement for $65,400,000, the entire amount of the 2007 A Bonds. With the of the swap, and in return, the counterparty owes the Agency interest based on a variable rate. Debt issuance of the 2010A Bonds, the Agency amended and restated the swap agreement. The amended principal is not exchanged; the outstanding notional amount of the swap is the basis on which the swap agreement requires the Agency to make and receive payments based on variable interest rates. The receipts and payments are calculated. Agency will make payments based on a variable interest rate equal to 100% of SIFMA plus a fixed percentage of 0.83% and the Agency will receive variable rate interest payments equal to 68% of 1- Fair value. Fair value of the swap takes into consideration the prevailing interest rate environment, the month LIBOR from the swap counterparty. With the issuance of the 2014 Successor Agency to the specific terms and conditions of each transaction and any upfront payments that may have been received. Richmond Redevelopment Agency Refunding Bonds, the Successor Agency amended the swap Fair value was estimated using the zero-coupon discounting method. This method calculates the future agreement to subordinate the termination payment provisions of the swap agreement to the debt service payments required by the swap, assuming that the current forward rates implied by the LIBOR swap on the 2014 Bonds. yield curve are the market’s best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate The annual debt service requirements on the bonds are as follows: bond due on the date of each future net settlement on the swap. The swap is classified as Level 2 of the fair value hierarchy, using a market approach that considers the observable swap rates commonly quoted For the Years for the full term of the swap. As of June 30, 2018, the fair value of the swap was in favor of the Ending June 30, Principal Interest Total counterparty.

2019 $1,325,000 $1,864,937 $3,189,937 The fair value represents the maximum loss that would be recognized at the reporting date if the 2020 1,015,000 1,786,325 2,801,325 counterparty failed to perform as contracted. The Agency has accounted for the change in fair value of 2021 1,270,000 1,689,437 2,959,437 the ineffective hedge as noted below: 2022 820,000 1,612,297 2,432,297 2023 880,000 1,547,844 2,427,844 Changes in Fair Value Fair value at June 30, 2018 Classification Amount Classification Amount 2024-2028 13,180,000 5,739,142 18,919,142

2029-2033 3,140,000 2,225,314 5,365,314 Pay-Variable, Receive-Variable 2034-2037 3,605,000 606,516 4,211,516 2010A Subordinate Tax Allocation Refunding Bonds Investment revenue $826,300 Investment ($4,033,000) Total $25,235,000 $17,071,812 $42,306,812

Credit risk. As of June 30, 2018, the Agency was not exposed to credit risk on the outstanding swap Interest Rate Swap Agreement because the swap had a negative fair value. However, if interest rates increase and the fair value of the swap were to become positive, the Agency would be exposed to credit risk. The Agency will be exposed The Agency entered into an interest swap agreement in connection with the 2010A Subordinate Tax to interest rate risk only if the counterparty to the swap defaults or if the swap is terminated. Allocation Refunding Bonds. The transaction allows the Agency to create a synthetic variable rate on the Bonds. The terms, fair value and credit risk of the swap agreement are disclosed below. Interest rate risk. The swap increases the Agency’s exposure to variable interest rates. As the SIFMA Municipal Swap Index Rate increases or the LIBOR decreases, the Agency’s net payment on the swap Terms. The terms, including the counterparty credit rating of the outstanding swap, as of June 30, 2018 increases. are included below. The swap agreement contains scheduled reductions to the outstanding notional amount. Basis risk. Basis risk is the risk that the interest rate paid by the Agency on the underlying fixed rate bonds to the bondholders temporarily differs from the variable swap rate received from the counterparty. Outstanding Long-Term Variable Variable The Agency bears basis risk on the swap. The swap has basis risk since the Agency receives a percentage Notional Effective Credit Rating Rate Rate Fair Value at Termination of the LIBOR Index to offset the fixed bond rate the Agency pays on the underlying Bonds. The Agency Amount Date Counterparty (S&P/Moody's/Fitch) Paid Received June 30, 2018 Date is exposed to basis risk should the floating rate that it receives on a swap be less than the fixed rate the $47,700,000 7/12/2007 Royal Bank of AA-/Aa2/AA SIFMA 68% of USD-1 ($4,033,000) 9/1/2036 Canada Municipal Month LIBOR Agency pays on the bonds. Depending on the magnitude and duration of any basis risk shortfall, the Swap Index expected cost of the basis risk may vary.

144 145 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

A portion of this basis risk is tax risk. The Agency is exposed to tax risk when the relationship between Successor Agency to the Richmond Community Redevelopment Agency Refunding Bonds 2014 the taxable LIBOR based swap and tax-exempt fixed rate bond changes as a result of a reduction in Series A & B – Original Issue Amounts $25,795,000 and $1,655,000, respectively federal and state income tax rates. Should the relationship between LIBOR and the underlying tax- exempt fixed rate bonds converge the Agency is exposed to this basis risk. The 2014 A & B Bonds were issued on March 27, 2014 by the Successor Agency to the Richmond Community Redevelopment Agency. The proceeds of the Bonds, together with other available funds, Termination risk. The Agency may terminate if the other party fails to perform under the terms of the were used to refund and defease the outstanding balance of the current interest portion of the 1998 contract. The Agency will be exposed to variable rates if the counterparty to the swap contract defaults Harbour Redevelopment Project Tax Allocation Refunding Bonds Series A, and the outstanding balances or if the swap contract is terminated. A termination of the swap contract may also result in the Agency’s of the Richmond Joint Powers Financing Authority Tax Allocation Revenue Bonds Series 2000 A & B making or receiving a termination payment based on market interest rates at the time of the termination. and Richmond Joint Powers Financing Authority Tax Allocation Revenue Bonds Series 2003A. Interest If at the time of termination the swap has a negative fair value, the Agency would be liable to the rates range from 1.40% to 5.00% and is payable semiannually on March 1 and September 1. The 2014A counterparty for a payment equal to the swap’s fair value. Bonds mature annually on each September 1 through 2025 while the 2014B Bonds mature annually on each September 1 through 2018. Both Bonds are secured by a pledge of Redevelopment Property Tax Swap payments and associated debt. Using rates as of June 30, 2018, debt service requirements of the Trust Fund revenues. The outstanding balances of the defeased debt as of June 30, 2018 were as follows: Agency’s outstanding fixed rate Bonds and net swap payments assuming current interest rates remain the same for their term, are as follows. As rates vary, fixed rate bond interest payments and net swap payments Harbour Tax Allocation Refunding Bonds - 1998 Series A $6,055,000 will vary. These payments below are included in the Debt Service Requirements above: JPFA Tax Allocation Revenue Bonds - 2000 Series A & B 3,360,000 JPFA Tax Allocation Revenue Bonds - 2003 Series A 11,025,000 $20,440,000 For the Years Fixed-Rate Bonds Interest Rate Ending June 30, Principal Interest Swap, Net Total At June 30, 2018, the 2014 A & B Bonds consisted of the following: 2019 $1,325,000 $1,437,361 $427,576 $3,189,937 2020 1,015,000 1,377,846 408,479 2,801,325 Bonds outstanding: $17,680,000 2021 1,270,000 1,317,325 372,112 2,959,437 Unamortized premium 1,170,386 Net $18,850,386 2022 820,000 1,260,644 351,653 2,432,297 2023 880,000 1,213,344 334,500 2,427,844 The annual debt service requirements on the A & B bonds are as follows: 2024-2028 13,180,000 4,475,120 1,264,022 18,919,142 2029-2033 3,140,000 1,617,301 608,013 5,365,314 For the Years 2034-2037 3,605,000 464,121 142,395 4,211,516 Ending June 30, Principal Interest Total Total $25,235,000 $13,163,062 $3,908,750 $42,306,812 2019 $3,505,000 $771,512 $4,276,512 2020 1,775,000 659,375 2,434,375 2021 1,870,000 568,250 2,438,250 2022 1,960,000 472,500 2,432,500 2023 2,000,000 373,500 2,373,500 2024-2026 6,570,000 490,000 7,060,000 Total $17,680,000 $3,335,137 $21,015,137

146 147 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

Loans Payable The annual debt service requirements on the 2003 Series B loan as of June 30, 2018 are as follows:

The Richmond Joint Powers Financing Authority (Authority) has issued the Bonds listed below to assist For the Years in financing the Agency’s operations. The Authority has retained reserve amounts required under the Ending June 30, Principal Interest Total respective Bond indentures and loaned the net proceeds of these Bond issues to the Agency. The 2019 $590,000 $488,842 $1,078,842 Authority is responsible for paying principal and interest on the Bonds; the Agency is responsible for making payments to the Authority in the amounts shown below. 2020 735,000 448,403 1,183,403 2021 785,000 400,523 1,185,523 The outstanding balances of loans payable to the Authority at June 30, 2018 came from the Bond issues 2022 835,000 349,493 1,184,493 listed below: 2023 885,000 295,313 1,180,313 2024-2026 4,245,000 449,348 4,694,348 JPFA Tax Allocation Revenue Bonds - 2003 Series B $8,075,000 Total $8,075,000 $2,431,922 $10,506,922 JPFA Tax Allocation Revenue Bonds - 2004 Series A & B 13,565,000 Total $21,640,000 Loan from the Authority dated October 1, 2004

Loan from the Authority dated August 1, 2003 In 2004, the Authority issued the 2004 Tax Allocation Revenue Bonds Series A and Series B in the original amounts of $15,000,000 and $2,000,000, respectively. The net proceeds of the bond issue were In 2003, the Authority issued 2003 Tax Allocation Revenue Bonds Series A and Series B in the original loaned to the Agency to provide funding for certain capital improvements, low/moderate income housing amount of $28,580,000. The net proceeds of the bond issue were loaned to the Agency to provide and to repay the City of Richmond $6,367,031 in prior obligations. Under the terms of the loan funding for certain capital improvements and to repay the City of Richmond $18,000,000 in partial agreement between the Agency and the Authority dated August 1, 2003, repayment of the loan is being payment of prior obligations. Under the terms of the loan agreement between the Agency and the made from certain subordinate housing and non-housing tax increment revenues derived from the taxable Authority dated August 1, 2003, repayment of the loan is being made from certain tax increment property within the Merged Project Area pledged by the Agency for the purpose of loan repayment. revenues derived from taxable property within the Post-2004 Limit Area pledged by the Agency for the purpose of loan repayment. On March 27, 2014, the Agency issued the Successor Agency to the The annual debt service requirements for these loans as of June 30, 2018 are as follows: Richmond Community Redevelopment Agency Refunding Bonds 2014 Series A & B which resulted in the refunding and defeasance of the outstanding balance of the 2003 Series A Bonds in the amount of For the Years $13,290,000 as discussed above. Ending June 30, Principal Interest Total At issuance, the Bonds were insured by MBIA Insurance Corporation (which was reinsured by National 2019 $335,000 $707,050 $1,042,050 Public Finance Guarantee Corporation (“NPFGC”)). On December 5, 2017, Kroll Bond Rating Agency 2020 3,105,000 620,564 3,725,564 downgraded its insurance financial strength rating for NPFGC from ‘AA+’ to ‘AA’ and subsequently 2021 680,000 525,014 1,205,014 withdrew the rating citing business reasons. On January 17, 2018, Moody’s Investors Service 2022 720,000 488,784 1,208,784 (“Moody’s”) downgraded its insurance financial strength rating on NPFGC from ‘A3’ to ‘Baa2’. As a 2023 850,000 446,956 1,296,956 result of the foregoing, Moody’s downgraded its Insured Rating on the Bonds from ‘A3’ to ‘Baa2’. On 2024-2027 7,875,000 1,220,808 9,095,808 February 13, 2019, S&P Global Ratings (formerly Standard and Poor’s Ratings Services) upgraded its Local Currency Long-Term and Underlying Ratings on the Bonds from ‘A+’ to ‘AA-‘. Total $13,565,000 $4,009,176 $17,574,176

148 149 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) (Continued)

Pledge of Redevelopment Tax Increment Revenues Debt Without Agency or City Commitment

A special assessment district has been established in an area of the Agency to provide improvements to The Bond issues and loans payable to the Authority discussed above consist of senior and parity properties located in that district. Properties in the district are assessed for the cost of improvements; obligations secured by future tax increment revenues. The pledge of all future tax increment revenues these assessments are payable solely by property owners over the term of the debt issued to finance these (housing and non-housing revenue) ends upon repayment of $118,223,047 remaining debt service on the improvements. The Agency is not legally or morally obligated to pay these debts or be the purchaser of Bonds and loans which is scheduled to occur in 2037. last resort of any foreclosed properties in these special assessment districts, nor is it obligated to advance

Agency funds to repay these debts in the event of default. With the dissolution of the Redevelopment Agency discussed above, Tax Increment is no longer

distributed, and instead the Successor Agency receives payments from the County’s Redevelopment One District, Marina Westshore Community Facilities District No. 1998-1, had issued Community Property Tax Trust Fund (RPTTF) that are to be used to fund debt service on the Bonds, with no Facilities District No. 1998-1 Special Tax Bonds which had a remaining balance outstanding of distinction between housing and non-housing revenues. In addition, under the provisions of the laws $2,535,000 at June 30, 2018. dissolving the Redevelopment Agency, the Successor Agency only receives the funds necessary to fulfill

its approved obligations. Total property taxes available for distribution to the Successor Agency and Conduit Debt other taxing entities for fiscal year 2018 calculated by the County Auditor–Controller were $26,889,111.

The total received by the Successor Agency for fiscal year 2018 debt service and other enforceable The Agency has assisted private-sector entities by sponsoring their issuance of debt for purposes the obligations was $12,255,069 and debt service was $11,670,329. Agency deems to be in the public interest. These debt issues are secured solely by the property financed

by the debt. The Agency is not legally or morally obligated to pay these debts or be the purchaser of last Notes Payable resort of any foreclosed properties secured by these debts, nor is it obligated to advance Agency funds to

repay these debts in the event of default by any of these issuers. At June 30, 2018, the balances of these SERAF Loan $10,636,837 issuers’ outstanding debts were as follows:

SERAF Loan Baycliff Apartment Project, 2004 Revenue Bonds $26,490,000 The State of California adopted AB26 4X in July 2009 which directs that a portion of the incremental Crescent Park Apartment Project, 2007 Series A & Series A-T Revenue Bonds 25,111,260 property taxes received by the redevelopment agencies, be paid instead to the County supplemental educational revenue augmentation fund (SERAF) in fiscal years 2010 and 2011. The Agency did not E. Commitments and Contingencies have the resources to make these payments and instead was able to enter into a structured payment plan agreement with the State Department of Finance that allows the payments to the County to be made over State Approval of Enforceable Obligations a ten year period. The loan bears interest at a rate of 2%. Payments of principal and interest are due on an annual basis, commencing May 10, 2014. The Successor Agency prepares a Recognized Obligation Payment Schedule (ROPS) annually that contains all proposed expenditures for the subsequent twelve-month period. The ROPS is subject to the For the Years review and approval of the Oversight Board as well as the State Department of Finance. Although the State Department of Finance may not question items included on the ROPS in one period, they may Ending June 30, Principal Interest Total question the same items in a future period and disallow associated activities. The amount, if any, of 2019 $332,087 $212,737 $544,824 current obligations that may be denied by the State Department of Finance cannot be determined at this 2020 338,728 206,095 544,823 time. The City expects such amounts, if any, to be immaterial. 2021 9,966,022 9,966,022 Total $10,636,837 $418,832 $11,055,669

150 151 CITY OF RICHMOND CITY OF RICHMOND NOTES TO BASIC FINANCIAL STATEMENTS NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

NOTE 17 – REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES NOTE 18 – SUBSEQUENT EVENTS (Continued) (Continued) III. Board of Commissioners Miraflores – Pollution Remediation a. Separate and independent b. Maintain existing structure The City, through the former Redevelopment Agency, has undertaken a known pollution remediation project at the Miraflores Housing Development site. The Successor Agency assumed the administration In February 2019, after conducting research and receiving guidance from the local HUD Office, the of the project as of February 1, 2012. Clean up of the 14 acre former flower nursery site, located at South Board of Commissioners authorized RHA to issue a “Letter of Intent” to transfer the Housing Choice 45th Street and Wall Avenue, will provide future residential and open space land. The remediation phase Voucher (HCV) and Project Based Voucher (PBV) Programs to the Housing Authority of the County of of the Miraflores project was completed during the fiscal year ended June 30, 2015. Contra Costa (HACCC) (a well-managed Housing Authority). The Board also directed RHA to formally ask HUD to transfer programs effective July 1, 2019. RHA intends to maintain all of its Public Housing At the time the original Remedial Action Plan was prepared, the original cost of the preferred alternative units along with other properties owned or managed under HOPE VI and RAD programs. The request remediation was estimated to be $3,200,000. As of June 30, 2015, the estimate had increased to $13.6 and associated documents from RHA and HACCC were forwarded to HUD for approval. million. During the fiscal year ended June 30, 2016, the Agency decreased the remediation estimate to $13.4 million. The Agency spent $13.4 million in pollution remediation costs since the project’s HUD has issued policies and guidance that authorize one housing authority (PHA) to voluntarily transfer inception through June 30, 2018. The project was completed as of June 30, 2018. Subsequent to June 30, the total budget authority and corresponding baseline units for its Housing Choice Voucher (Voucher) and 2018, the Miraflores Housing Development site was sold to a private developer. Project-based Voucher (PBV) Programs to another PHA, subject to approval by HUD. On April 16, 2019, RHA received notice of approval for the Voluntary Transfer of the HCV and PBV programs from NOTE 18 – SUBSEQUENT EVENTS RHA to the Housing Authority of the County of Contra Costa effective July 1, 2019. RHA and HACCC plan to enter into a Memorandum of Understanding outlining the facilitation of the program transfer. A. Terminal One Land Sale

The City is in contract with Terminal One Development, LCC, to sell an approximately 10-acre site for development purposes at a price of $10 million. The developer has paid the City $500,000 in a non- refundable deposit, with the balance of $9.5 million due following the granting of all entitlements and close of escrow. Following City Council certification of the environmental impact report (EIR) for the project in July 2016, a lawsuit was filed that challenged certification of the EIR. A settlement was reached by all parties to this lawsuit in November 2016, which allows the project entitlement process to proceed. Close of escrow on the real estate sale by the City to Terminal One Development, LLC, including the transfer of the $9.5 million balance due from the developer to the City, is anticipated by June 2019.

B. Transfer of the Section 8 Program to Housing Authority of the County of Contra Costa

As a result of the Recovery Agreement Action Plan, established and entered into with the U.S. Department of Housing and Urban Development (HUD) and Richmond Housing Authority (RHA), to analyze the following options:

A. Transfer all operations to another well-managed public housing agency I. Dispose Public Housing operations II. Transfer Housing Choice Voucher (HCV) operations

B. Separate from the City of Richmond I. Dispose Public Housing operations II. Maintain HCV operations III. Separate and independent RHA Board of Commissioners

C. Maintain RHA as a component of the City I. Dispose its Public Housing operations II. Maintain its HCV Operations

152 153 City of Richmond Required Supplementary Information

BUDGETARY COMPARISON SCHEDULES

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155 CITY OF RICHMOND GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018

Variance with Budgeted Amounts Final Budget Actual Positive Original Final Amounts (Negative)

REVENUES: Property tax $38,782,023 $38,361,265 $38,961,021 $599,756 Sales tax 42,299,235 42,876,659 44,474,973 1,598,314 Utility user fees 45,916,543 46,627,843 46,079,755 (548,088) Other taxes 11,593,174 12,093,174 12,413,127 319,953 Licenses, permits and fees 4,802,874 4,802,874 3,802,576 (1,000,298) Fines, forfeitures and penalties 943,088 943,088 981,984 38,896 Use of money and property 32,903 32,903 189,599 156,696 Intergovernmental 1,493,660 700,573 1,102,944 402,371 Charges for services 7,238,870 7,713,030 7,823,287 110,257 Rent 808,222 808,222 849,640 41,418 Other 235,927 349,900 414,525 64,625

Total Revenues 154,146,519 155,309,531 157,093,431 1,783,900

EXPENDITURES: Current General government 24,733,664 26,172,431 28,402,147 (2,229,716) This Page Left Intentionally Blank Public safety 94,289,105 93,651,101 93,646,193 4,908 Public works 22,926,681 23,068,602 22,805,801 262,801 Cultural and recreational 11,023,357 11,022,963 10,734,162 288,801 Capital outlay 432,000 131,213 127,246 3,967 Debt Service: Principal 1,040,350 1,040,350 814,494 225,856 Interest and fiscal charges 256,646 256,646 256,830 (184)

Total Expenditures 154,701,803 155,343,306 156,786,873 (1,443,567) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (555,284) (33,775) 306,558 340,333

OTHER FINANCING SOURCES (USES) Bond premium Proceeds from sale of property 35,000 35,000 39,226 4,226 Transfers in 6,212,080 6,212,080 6,035,115 (176,965) Transfers (out) (5,691,357) (6,153,382) (6,166,866) (13,484)

Total other financing sources (uses) 555,723 93,698 (92,525) (186,223)

NET CHANGE IN FUND BALANCE 439 59,923 214,033 154,110

Fund balance, July 1 35,416,890 35,416,890 35,416,890

Fund balance, June 30 $35,417,329 $35,476,813 $35,630,923 $154,110

157 CITY OF RICHMOND City of Richmond COMMUNITY DEVELOPMENT AND LOAN PROGRAMS SPECIAL REVENUE FUND Required Supplementary Information SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018 NOTES TO BUDGETARY COMPARISON SCHEDULES

Budgets and Budgetary Accounting Variance with Budgeted Amounts Final Budget The City adopts a budget annually to be effective July 1, for the ensuing fiscal year. Budgeted Actual Positive expenditures are adopted through the passage of a resolution. This resolution constitutes the maximum Original Final Amounts (Negative) authorized expenditures for the fiscal year and cannot legally be exceeded except by subsequent amendments of the budget by the City Council. REVENUES Licenses, permits and fees $150,000 $150,000 $1,697,222 $1,547,222 Use of money and property 78,154 78,154 282,805 204,651 The City uses an encumbrance system as an extension of normal budgetary accounting for the General Intergovernmental 4,380,049 4,780,049 341,491 (4,438,558) Fund, special revenue funds, and capital projects funds. Under this system, purchase orders, contracts, Other 991,660 991,660 2,062,661 1,071,001 and other commitments for the expenditure of monies are recorded in order to reserve that portion of applicable appropriations. Encumbrances outstanding at year-end are recorded as reservations of fund Total Revenues 5,599,863 5,999,863 4,384,179 (1,615,684) balance since they do not constitute expenditures or liabilities. Outstanding encumbrances at year-end are reappropriated for the following year. Unencumbered and unexpended appropriations lapse at year-end. EXPENDITURES Current: An operating budget is adopted each fiscal year on a basis consistent with Generally Accepted Community development 1,066,010 1,466,011 3,604,538 (2,138,527) Accounting Principles (GAAP) for the General Fund, certain Special Revenue Funds (State Gas Tax, Housing and redevelopment 2,471,308 1,839,322 764,390 1,074,932 General Purpose, Paratransit Operations, Public Safety, Lighting and Landscaping Districts, Developer Capital outlay 2,774,319 2,774,319 265,715 2,508,604 Impact Fees, Community Development and Loan Programs, Richmond Neighborhood Stabilization Total Expenditures 6,311,637 6,079,652 4,634,643 1,445,009 Corporation, Rent Control, Cost Recovery and Environmental and Community Investment Agreement) and the debt service funds (2005 Pension Obligation Bonds, General Debt Service and Civic Center Debt EXCESS (DEFICIENCY) OF REVENUES Service). Public hearings are conducted on the proposed budgets to review all appropriations and sources OVER EXPENDITURES (711,774) (79,789) (250,464) (170,675) of financing. Capital projects funds are budgeted on a project length basis and are therefore not comparable on an annual basis. OTHER FINANCING SOURCES (USES) Proceeds from sale of property 10,500 10,500 (10,500) Expenditures are controlled at the fund level for all budgeted departments within the City. This is the Transfers in 260,202 260,202 (260,202) level at which expenditures may not legally exceed appropriations. Budgeted amounts for the Statement Transfers (out) (255,762) (255,762) of Revenues, Expenditures and Changes in Fund Balances-Budget and Actual include budget Total other financing sources (uses) 270,702 14,940 (255,762) (270,702) amendments approved by City Council.

NET CHANGE IN FUND BALANCES BEFORE SPECIAL ITEM (441,072) (64,849) (506,226) (441,377)

SPECIAL ITEM: Transfer of loans to housing successor 1,208,259 1,208,259

NET CHANGE IN FUND BALANCE (441,072) (64,849) 702,033 766,882

Fund balance, July 1 24,362,160 24,362,160 24,362,160

Fund balance, June 30 $23,921,088 $24,297,311 $25,064,193 $766,882

158 159 City of Richmond City of Richmond Required Supplementary Information Required Supplementary Information

Miscellaneous Agent Multiple-Employer Defined Benefit Pension Plan Miscellaneous Agent Multiple-Employer Defined Benefit Pension Plan Last 10 Years* As of fiscal year ending June 30 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last 10 Years* SCHEDULE OF CONTRIBUTIONS Measurement Date 6/30/2014 6/30/2015 6/30/2016 6/30/2017 Total Pension Liability Fiscal Year Ended June 30 2015 2016 2017 2018 Service Cost $ 7,816,868 $ 7,446,410 $ 7,200,571 $ 8,053,459 Interest 30,597,498 31,414,256 32,305,003 32,804,753 Actuarially determined contribution $ 7,178,549 $ 8,084,584 $ 8,867,763 $ 10,436,250 Differences between expected and actual experience (5,280,549) (3,484,064) (4,464,966) Contributions in relation to the actuarially Changes in assumptions (7,116,200) 25,548,824 Changes in benefits determined contributions (7,178,549) (8,084,584) (8,867,763) (10,436,250) Benefit payments, including refunds of employee Contribution deficiency (excess) $ - $ - $ - $ - contributions (23,007,539) (23,302,793) (23,917,069) (25,074,448) Net change in total pension liability 15,406,827 3,161,124 12,104,441 36,867,622 Covered payroll $ 36,151,102 $ 36,638,889 $ 35,964,798 $ 35,725,311 Total pension liability - beginning 415,561,984 430,968,811 434,129,935 446,234,376 Total pension liability - ending (a) $ 430,968,811 $ 434,129,935 $ 446,234,376 $ 483,101,998 Contributions as a percentage of covered Plan fiduciary net position payroll 19.86% 22.07% 24.66% 29.21% Contributions - employer $ 6,661,038 $ 7,189,716 $ 8,093,834 $ 8,860,295 Contributions - employee 3,195,699 3,141,565 3,087,656 2,996,354 Net investment income (1) 51,867,728 7,502,958 1,630,388 35,805,938 Notes to Schedule Plan to plan resource movement (6,885) (4,762) (50,018) Valuation date: 6/30/2012 6/30/2013 6/30/2014 6/30/2015 Administrative expense (379,925) (205,714) (481,651) Benefit payments, including refunds of employee Methods and assumptions used to determine contribution rates: contributions (23,007,539) (23,302,793) (23,917,069) (25,074,448) Net change in plan fiduciary net position 38,716,926 (5,855,364) (11,315,667) 22,056,470 Actuarial cost method Entry age normal Plan fiduciary net position - beginning 304,680,611 343,397,537 337,542,173 326,226,506 Amortization method For details, see June 30 Funding Valuation Report Plan fiduciary net position - ending (b) $ 343,397,537 $ 337,542,173 $ 326,226,506 $ 348,282,976 Asset valuation method Market Value of Assets. For details, see June 30 Funding Valuation Report Net pension liability - ending (a)-(b) $ 87,571,274 $ 96,587,762 $ 120,007,870 $ 134,819,022 Inflation 2.75% Payroll Growth 3.00% Plan fiduciary net position as a percentage of the total Salary increases Varies by Entry Age and Service pension liability 79.68% 77.75% 73.11% 72.09% Investment rate of return 7.50%, Net of Pension Plan Investment and Administrative Expenses; including Inflation Covered payroll $ 37,210,225 $ 36,151,102 $ 36,638,889 $ 35,964,798 The probability of Retirement are based on the 2010 CalPERS Experience Study for the period Net pension liability as percentage of covered payroll 235.34% 267.18% 327.54% 374.86% Retirement age from 1997 to 2007. The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period Notes to Schedule: from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of (1) Net of administrative expense in 2014. Mortality Rate Table projected mortality improvement using Scale AA published by the Society of Actuaries. Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit * - Fiscal year 2015 was the 1st year of implementation. changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes in assumptions. GASB 68, paragraph 68 states that the long long-term expected rate of return should be determined net of pension plan investment expense, but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. All other assumptions for the June 30, 2014 measurement date were the same as those used for the June 30, 2015 and 2016 measurement dates. In June 30, 2017 the discount rate was reduced from 7.65% to 7.15%.

* - Fiscal year 2015 was the 1st year of implementation.

160 161 City of Richmond City of Richmond Required Supplementary Information Required Supplementary Information

Safety Agent Multiple-Employer Defined Benefit Pension Plan Safety Agent Multiple-Employer Defined Benefit Pension Plan As of fiscal year ending June 30 Last 10 Years* Last 10 Years* SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SCHEDULE OF CONTRIBUTIONS

Measurement Date 6/30/2014 6/30/2015 6/30/2016 6/30/2017 Fiscal Year Ended June 30 2015 2016 2017 2018 Total Pension Liability Service Cost$ 10,167,167 $ 10,142,245 $ 10,297,536 $ 11,650,927 Actuarially determined contribution $ 10,650,057 $ 11,492,798 $ 12,696,582 $ 14,013,858 Interest 38,254,517 40,142,006 41,950,593 43,264,626 Contributions in relation to the actuarially Differences between expected and actual experience 3,799,388 2,950,295 797,969 determined contributions (10,650,057) (11,492,798) (12,696,582) (14,013,858) Changes in assumptions (9,563,090) 35,109,898 Changes in benefits Contribution deficiency (excess) $ - $ - $ - $ - Benefit payments, including refunds of employee contributions (27,199,743) (28,747,508) (30,593,589) (33,620,000) Covered payroll $ 36,151,966 $ 37,352,212 $ 37,273,957 $ 34,439,607 Net change in total pension liability 21,221,941 15,773,041 24,604,835 57,203,420 Total pension liability - beginning 518,576,503 539,798,444 555,571,485 580,176,320 Total pension liability - ending (a) $ 539,798,444 $ 555,571,485 $ 580,176,320 $ 637,379,740 Contributions as a percentage of covered payroll 29.46% 30.77% 34.06% 40.69% Plan fiduciary net position Contributions - employer$ 9,352,438 $ 10,652,641 $ 11,488,714 $ 12,699,049 Notes to Schedule Contributions - employee 3,348,408 3,797,568 4,607,993 4,471,008 Valuation date: 6/30/2012 6/30/2013 6/30/2014 6/30/2015 Net investment income (1) 64,842,562 9,408,186 2,062,417 45,166,243 Plan to plan resource movement 3,476 4,762 50,018 Methods and assumptions used to determine contribution rates: Administrative expense (477,249) (258,432) (607,337) Benefit payments, including refunds of employee Actuarial cost method Entry age normal contributions (27,199,743) (28,747,508) (30,593,589) (33,620,000) Amortization method For details, see June 30 Funding Valuation Report Net change in plan fiduciary net position 50,343,665 (5,362,886) (12,688,135) 28,158,981 Asset valuation method Market Value of Assets. For details, see June 30 Funding Valuation Report Plan fiduciary net position - beginning 379,062,015 429,405,680 424,042,794 411,354,659 Plan fiduciary net position - ending (b) $ 429,405,680 $ 424,042,794 $ 411,354,659 $ 439,513,640 Inflation 2.75% Payroll Growth 3.00% Net pension liability - ending (a)-(b)$ 110,392,764 $ 131,528,691 $ 168,821,661 $ 197,866,100 Salary increases Varies by Entry Age and Service Plan fiduciary net position as a percentage of the total Investment rate of return 7.50%, Net of Pension Plan Investment and Administrative Expenses; includes Inflation pension liability 79.55% 76.33% 70.90% 68.96% The probability of Retirement are based on the 2014 CalPERS Experience Study for the period Retirement age from 1997 to 2011. Covered payroll $ 35,479,947 $ 36,151,966 $ 37,352,212 $ 37,273,957 The probabilities of mortality are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Pre-retirement and Post-retirement mortality rates include 20 years of Net pension liability as percentage of covered payroll 311.14% 363.82% 451.97% 530.84% Mortality Rate Table projected mortality improvement using Scale BB published by the Society of Actuaries. Notes to Schedule: (1) Net of administrative expense in 2014. * - Fiscal year 2015 was the 1st year of implementation. Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes in assumptions. GASB 68, paragraph 68 states that the long long-term expected rate of return should be determined net of pension plan investment expense, but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. All other assumptions for the June 30, 2014 measurement date were the same as those used for the June 30, 2015 and 2016 measurement dates. In June 30, 2017 the discount rate was reduced from 7.65% to 7.15%.

* - Fiscal year 2015 was the 1st year of implementation.

162 163 City of Richmond City of Richmond Required Supplementary Information Required Supplementary Information

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last 10 Fiscal Years * Last 10 Fiscal Years * General Pension Plan Measurement Period Ended June 30 Police and Firemen's Pension Plan Measurement Period Ended June 30 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Total Pension Liability Total Pension Liability Service Cost Service Cost Interest$ 147,247 $ 128,954 $ 107,632 $ 92,742 $ 80,100 Interest$ 1,579,762 $ 1,464,746 $ 1,214,089 $1,111,386$ 1,031,753 Differences between expected and actual experience 345,786 40,459 Differences between expected and actual experience (323,462) 261,891 Changes of assumptions 322,312 (20,669) Changes of assumptions 1,380,854 Changes of benefit terms Changes of benefit terms Benefit payments, including member contribution refunds (592,105) (672,546) (623,662) (584,272) (524,939) Benefit payments, including member contribution refunds (3,436,887) (3,074,421) (3,140,552) (2,859,902) (2,656,508) Net change in Total Pension Liability (444,858) 124,506 (516,030) (451,071) (465,508) Net change in Total Pension Liability (1,857,125) (552,283) (1,926,463) (1,486,625) (1,624,755) Total Pension Liability at beginning of year 4,219,909 3,775,051 3,899,557 3,383,527 2,932,456 Total Pension Liability at beginning of year 25,094,272 23,237,147 22,684,864 20,758,401 19,271,776 Total pension liability at end of year $ 3,775,051 $ 3,899,557 $ 3,383,527 $ 2,932,456 $ 2,466,948 Total pension liability at end of year $ 23,237,147 $ 22,684,864 $ 20,758,401 $ 19,271,776 $ 17,647,021

Fiduciary Net Position Fiduciary Net Position Contributions - employer $ 602,970 $ 602,970 $ 602,970 $ 73,592 $ 814,594 Contributions - employer $ 740,235 $ 740,235 $ 1,222,197 $ 1,270,466 $ 1,270,466 Contributions - donations and other income Contributions - donations and other income Contributions - member Contributions - member Net investment income (837) 2,017 2,255 3,351 2,207 Net investment income 2,968,492 369,240 (165,490) 1,340,997 589,027 Other additions Other additions Benefit payments, including member contribution refunds (592,105) (672,546) (623,662) (584,272) (524,939) Benefit payments, including member contribution refunds (3,436,887) (3,074,421) (3,140,552) (2,859,902) (2,656,508) Administrative expenses Administrative expenses Other deductibles Other deductions (3,424,568) Net change in Fiduciary Net Position 10,028 (67,559) (18,437) (507,329) 291,862 Net change in Fiduciary Net Position (3,152,728) (1,964,946) (2,083,845) (248,439) (797,015) Fiduciary Net Position at beginning of year 1,033,168 1,043,196 975,637 957,200 449,871 Fiduciary Net Position at beginning of year 19,834,552 16,681,824 14,716,878 12,633,033 12,384,594 Fiduciary net position at end of year $ 1,043,196 $ 975,637 $ 957,200 $ 449,871 $ 741,733 Fiduciary net position at end of year $ 16,681,824 $ 14,716,878 $ 12,633,033 $ 12,384,594 $ 11,587,579

Net pension liability (asset) at end of year $ 2,731,855 $ 2,923,920 $ 2,426,327 $ 2,482,585 $ 1,725,215 Net pension liability (asset) at end of year $ 6,555,323 $ 7,967,986 $ 8,125,368 $ 6,887,182 $ 6,059,442

Fiduciary net position as percentage of total pension 27.6% 25.0% 28.3% 15.3% 30.1% Fiduciary net position as percentage of total pension 71.8% 64.9% 60.9% 64.3% 65.7% Covered payroll n/a n/a n/a n/a n/a Covered payroll n/a n/a n/a n/a n/a Net pension liability as percentage of covered payroll Net pension liability as percentage of covered payroll n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

* Fiscal year 2014 was the 1st year of implementation. * Fiscal year 2014 was the 1st year of implementation.

164 165 City of Richmond City of Richmond Required Supplementary Information Required Supplementary Information

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SCHEDULE OF CONTRIBUTIONS Last 10 Fiscal Years * Last 10 Fiscal Years

Garfield Pension Plan Measurement Period Ended June 30 (1) (3) 20142015201620172018 Actuarially Contribution (4) (5) Total Pension Liability Determined (2) Deficiency Covered- ADC / Covered- Service Cost Fiscal Contribution Employer (Excess) Employee Employee Payroll Interest$ 30,759 $ 28,597 $ 21,615 $ 19,517 $ 19,334 Differences between expected and actual experience (45,458) 67,810 Year (ADC) Contributions (1)-(2) Payroll (1)/(4) Changes of assumptions 64,544 Police and Firemen's Plan Changes of benefit terms June 30, 2008 $ 2,199,459 $ 5,000,000 $ (2,800,541) n/a n/a Benefit payments, including member contribution refunds (87,140) (88,883) (90,660) (92,474) (94,323) Net change in Total Pension Liability (56,381) (41,200) (69,045) (5,147) (74,989) June 30, 2009 1,887,057 4,800,000 (2,912,943) n/a n/a Total Pension Liability at beginning of year 863,415 807,034 765,834 696,789 691,642 June 30, 2010 2,477,902 4,600,000 (2,122,098) n/a n/a Total pension liability at end of year $ 807,034 $ 765,834 $ 696,789 $ 691,642 $ 616,653 June 30, 2011 2,257,912 - 2,257,912 n/a n/a June 30, 2012 1,596,771 - 1,596,771 n/a n/a Fiduciary Net Position June 30, 2013 1,813,721 1,596,771 216,950 n/a n/a Contributions - employer $ 102,140 $ 102,140 $ 102,140 $ 102,140 $ 102,140 June 30, 2014 740,235 740,234 1 n/a n/a Contributions - donations and other income June 30, 2015 740,235 740,235 - n/a n/a Contributions - member June 30, 2016 1,270,466 1,222,197 48,269 n/a n/a Net investment income 227 577 933 1,517 2,627 June 30, 2017 1,270,466 1,270,466 - n/a n/a Other additions June 30, 2018 1,389,612 1,270,466 119,146 n/a n/a Benefit payments, including member contribution refunds (87,141) (88,883) (90,660) (92,474) (94,323) Administrative expenses General Pension Plan Other deductions Net change in Fiduciary Net Position 15,226 13,834 12,413 11,183 10,444 June 30, 2008 $ 307,948 $ 307,948 $ - n/a n/a Fiduciary Net Position at beginning of year 244,661 259,887 273,721 286,134 297,317 June 30, 2009 307,948 307,948 - n/a n/a Fiduciary net position at end of year $ 259,887 $ 273,721 $ 286,134 $ 297,317 $ 307,761 June 30, 2010 486,092 486,092 - n/a n/a June 30, 2011 486,092 486,092 - n/a n/a Net pension liability (asset) at end of year $ 547,147 $ 492,113 $ 410,655 $ 394,325 $ 308,892 June 30, 2012 455,662 148,186 307,476 n/a n/a June 30, 2013 502,278 660,992 (158,714) n/a n/a Fiduciary net position as percentage of total pension 32.2% 35.7% 41.1% 43.0% 49.9% June 30, 2014 602,970 602,970 - n/a n/a Covered payroll n/an/an/an/an/a June 30, 2015 602,970 602,970 - n/a n/a June 30, 2016 750,016 602,970 147,046 n/a n/a Net pension liability as percentage of covered payroll n/an/an/an/an/a June 30, 2017 750,016 73,592 676,424 n/a n/a June 30, 2018 947,219 814,594 132,625 n/a n/a

* Fiscal year 2014 was the 1st year of implementation. Garfield Pension Plan June 30, 2008 $ 72,484 $ 72,484 $ - n/a n/a June 30, 2009 72,484 72,484 - n/a n/a June 30, 2010 76,692 76,692 - n/a n/a June 30, 2011 76,692 76,692 - n/a n/a June 30, 2012 78,731 - 78,731 n/a n/a June 30, 2013 92,092 77,000 15,092 n/a n/a June 30, 2014 102,140 102,140 - n/a n/a June 30, 2015 102,140 102,140 - n/a n/a June 30, 2016 78,987 102,140 (23,153) n/a n/a June 30, 2017 78,987 102,140 (23,153) n/a n/a June 30, 2018 86,103 102,140 (16,037) n/a n/a

166 167 City of Richmond City of Richmond Required Supplementary Information Required Supplementary Information

SCHEDULE OF CONTRIBUTIONS (Continued) OTHER POST-EMPLOYMENT BENEFITS PLAN SCHEDULES OPEB PLAN TRUST FUND, AN AGENT MULTIPLE-EMPLOYER DEFINED BENEFIT PLAN

SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS Notes to Schedule: Last Ten Fiscal Years for the Measurement Periods Ended June 30 (1)

Police and Firemen's Plan General Pension Plan Garfield Pension Plan

Actuarially determined contribution rates are calculated as of the end of the fiscal year in which contributions are reported. From the July 1, 2017 Actuarial Valuation For the Measurement Period Ended June 30 2017 2018 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal cost Entry age normal cost Entry age normal cost Total OPEB Liability Amortization method Investment Gains & Losses: Straight-line amortization over a closed 5-year period. Effects of Assumptions Changes and Experience Gains and Losses: Service Cost $7,558,987 $6,730,397 Straight-line amortization over a closed period equal to the average of the expected Interest 7,064,307 7,927,217 remaining service lives of all members that are provided with pensions through the pension plan. Changes in benefit terms Since the plan no longer has active members, the effects of assumption changes and experience gains and losses are recognized immediately. Differences between expected and actual experience (2,816,969) Remaining amortization period 6 years 2 years 5 years Changes of assumptions (15,340,529) 8,715,168 Asset valuation method Market value of assets Market value of assets Market value of assets Inflation 2.75% 2.75% 2.75% Benefit payments (6,497,645) (6,861,529) Salary increases used to estimate future Net change in total OPEB liability (7,214,880) 13,694,284 increases to pensions N/A N/A N/A Total OPEB liability - beginning 198,687,162 191,472,282 Discount rate, net of investment expenses 5.75% 3.18% 3.00% Retirement age Closed to new members Closed to new members Closed to new members Total OPEB liability - ending (a) $191,472,282 $205,166,566 Mortality California PERS Mortality Table in its 2014 experience study (based on CalPERS 2001 - 2011 experience) Plan fiduciary net position Contributions - employer $13,218,475 $13,599,120 Contributions - employee 278,850 765,475 SCHEDULE OF INVESTMENT RETURNS Net investment income 227,394 632,089 Last 10 Fiscal Years * Administrative expense (11,250) (49,169) Benefit payments (6,497,645) (6,861,529) Annual money-weighted rate Net change in plan fiduciary net position 7,215,824 8,085,986 of return, net of investment expense 2014 2015 2016 2017 2018 Plan fiduciary net position - beginning 2,121,069 9,336,893 Plan fiduciary net position - ending (b) $9,336,893 $17,422,879 Police and Fireman's Plan 3.90% 2.40% -1.20% 11.80% 4.90%

General Pension Plan 0.10% 0.30% 0.30% 0.50% 1.00% Net OPEB liability - ending (a)-(b) $182,135,389 $187,743,687

Garfield Pension Plan 0.40% 0.30% 0.40% 0.60% 1.00% Plan fiduciary net position as a percentage of the total OPEB liability 4.88% 8.49%

Covered-employee payroll $66,774,795 $65,359,713 * Fiscal year 2014 was the 1st year of implementation. Net OPEB liability as a percentage of covered-employee payroll 272.76% 287.25%

(1) Fiscal year 2017 was the first year of implementation.

168 169 City of Richmond CITY OF RICHMOND Required Supplementary Information JUNE 30, 2018

OTHER POST-EMPLOYMENT BENEFITS PLAN SCHEDULES NON-MAJOR GOVERNMENTAL FUNDS

SPECIAL REVENUE FUNDS SCHEDULE OF PLAN CONTRIBUTIONS Last 10 Fiscal Years (1) State Gas Tax Fund accounts for the subventions received from state gas taxes under the provision of the Streets and Highways Code. State gas taxes are restricted to uses for street construction activities including location of underground utilities, geotechnical work relating to identification of soil and Fiscal Year Ended June 30, 2017 2018 groundwater contamination, materials sampling and testing.

Contractually Required Contributions (CRC) (2) $6,497,645 $6,861,529 General Purpose Fund accounts for other restricted monies that are to be used for the specific purposes for which the funds were set up. Contributions in relation to the CRC (6,497,645) (6,861,529) Contribution Deficiency (Excess) $0 $0 Paratransit Operations Fund accounts for monies used to provide subsidized, accessible transportation to the seniors and disabled residents of the City of Richmond and the adjacent unincorporated areas of (1) Fiscal year 2017 was the first year of implementation. West Contra Costa County. (2) The City does not calculate an Actuarially Determined Contribution, but the City's agreements with its bargaining units provide for various benefit levels as discussed in Note 12 to Employment & Training Fund is a fund set up to plan, administer and operate job training programs for the financial statements. Contributions reported include the implicit subsidy. the adult and youth residents of Richmond.

Public Safety Fund records the receipt and use of grant monies under the Local Law Enforcements SCHEDULE OF INVESTMENT RETURNS Block Grant Program, Office of Traffic Safety Grants, OES Grants, FEMA Grants and various other Last Ten Fiscal Years Ended June 30 (1) grants.

For the Fiscal Year Ended June 30 2017 2018 Lighting and Landscaping Districts Fund was set up to account for maintenance services in the nature of landscaping, lighting, cleaning provided to the Hilltop parking lot area, the Marina Way Development Annual money-weighted rate of return, area, and the Marina Bay area. net of investment expense 10.75% 6.30% Developer Impact Fees Fund is used to account for monies received from fees levied by the City on new commercial and residential projects. These funds will be used to mitigate the additional public safety and infrastructure costs resulting from these development projects.

Notes: Secured Pension Override Fund records the receipt of Pension Tax override collected through property (1) Fiscal year 2017 was the first year of implementation taxes for payment of pension contributions.

Richmond Neighborhood Stabilization Corporation Fund - The Richmond Neighborhood Stabilization Corporation Special Revenue Fund accounts for the activities of the Corporation.

Rent Control Fund is used to account for fees paid by landlords to fund the operation of Richmond's Fair Rent, Just Cause for Eviction, and Homeowner Protection programs.

Cost Recovery Fund is used to record the receipt and use of monies for services provided to the public and developers.

Environmental and Community Investment Agreement (ECIA) Fund accounts for funding received from Chevron in conjunction with the Chevron Modernization Project Environmental and Community Investment Agreement to fund various projects and programs within the City of Richmond.

170 171 CITY OF RICHMOND JUNE 30, 2018

NON-MAJOR GOVERNMENTAL FUNDS (Continued)

DEBT SERVICE FUNDS

2005 Pension Obligation Bonds Debt Service Fund receives transfers from the General Fund and the Pension Tax Override Fund, and pays the debt service on the 2005 Pension Obligation Bonds.

General Debt Service Fund accounts for monies received in connection with the 1995A and the 1999 Series A Pension Obligation Bonds and the related payments on such debt. The 1995 Series A bonds were to refinance the cost of capital improvements, and the 1999 Series A bonds were issued to find a portion of the unfunded accrued actuarial liability in the Pension Fund.

Civic Center Debt Service Fund accounts for principal and interest payments on the Civic Center Project Lease Revenue Bonds.

CAPITAL PROJECTS FUNDS

General Capital Improvement Fund accounts for monies designated for capital improvement projects.

Measure C/J Fund was set up when the voters of Contra Costa County approved Measure C providing for the creation of the Contra Costa County Transportation Authority. The half-cent transportation sales tax was renewed under Measure J, effective April 1, 2009. The Authority collects one-half of one percent sales and use tax. Twenty percent of this tax is allocated to the City of Richmond to be used for the This Page Left Intentionally Blank improvement of local transportation, including streets and roads in accordance with Measure C and Measure J compliance.

Harbor Navigation Fund records the expenses relating to the construction of certain public improvements relating to the Port of Richmond consisting of dredging and deepening of the Richmond Harbor.

172 CITY OF RICHMOND NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS FOR THE YEAR ENDED JUNE 30, 2018

SPECIAL REVENUE FUNDS SPECIAL REVENUE FUNDS Richmond Lighting and Developer Secured Neighborhood State General Paratransit Employment Public Landscaping Impact Pension Stabilization Rent Cost Gas Tax Purpose Operations and Training Safety Districts Fees Override Corporation Control Recovery

ASSETS

Cash and investments $682,278 $1,425,798 $1,409,377 $310,869 $1,257,487 $5,141,810 $50,700 $178 Restricted cash and investments 4,225 124,772 Receivables: Accounts, net 138,960 5,773 $5,149 62,109 7,479 11,649 $848,931 Interest 1,701 3,165 708 2,838 8,804 111 309 4,339 Grants 1,009,674 786,123 30,353 1,701,210 Loans 779,013

Total Assets $822,939 $2,444,410 $5,149 $2,261,834 $341,930 $1,267,804 $5,150,614 $954,596 $12,136 $2,554,480

LIABILITIES

Accounts payable and accrued liabilities $504,759 $403,251 $11,381 $78,773 $16,969 $37,473 $15,843 $99,815 $1,201,079 Refundable deposits 554,874 Due to other funds 2,902,517 2,681,960 Unearned revenue 635,527 60,000 20,093

Total Liabilities 504,759 1,038,778 2,913,898 138,773 16,969 37,473 15,843 99,815 4,458,006

DEFERRED INFLOWS OF RESOURCES

Unavailable revenue 721,206 103,798 7,479 $779,013 1,186,864

FUND BALANCE

Restricted 318,180 684,426 2,019,263 324,961 1,222,852 5,134,771 175,583 Assigned Unassigned (2,908,749) (87,679) (3,090,390)

Total Fund Balances (Deficits) 318,180 684,426 (2,908,749) 2,019,263 324,961 1,222,852 5,134,771 175,583 (87,679) (3,090,390)

Total Liabilities, Deferred Inflows of Resources and Fund Balances $822,939 $2,444,410 $5,149 $2,261,834 $341,930 $1,267,804 $5,150,614 $954,596 $12,136 $2,554,480

(Continued)

174 175 CITY OF RICHMOND NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS FOR THE YEAR ENDED JUNE 30, 2018

SPECIAL REVENUE FUND DEBT SERVICE FUNDS CAPITAL PROJECTS FUNDS Environmental 2005 Total and Community Pension Nonmajor Investment Obligation General Civic Center General Capital Harbor Governmental Agreement Bonds Debt Service Debt Service Improvement Measure C / J Navigation Funds

ASSETS

Cash and investments $15,079,174 $1,057,597 $456,257 $43,810 $26,915,335 Restricted cash and investments $9,844,431 $150 $1,046,238 86,361 11,106,177 Receivables: Accounts, net 1,906,395 2,986,445 Interest 29,268 13 476 96 51,828 Grants 2,550,798 125,944 6,204,102 Loans 779,013

Total Assets $15,108,442 $9,844,431 $150 $1,046,238 $3,694,769 $2,489,072 $43,906 $48,042,900

LIABILITIES

Accounts payable and accrued liabilities $766,141 $100 $51,514 $313,791 $3,500,889 Refundable deposits 554,874 Due to other funds $237 1,003,477 6,588,191 Unearned revenue 2,895,537 3,611,157

Total Liabilities 766,141 237 3,899,114 51,514 313,791 14,255,111

DEFERRED INFLOWS OF RESOURCES

Unavailable revenue 698,200 125,944 3,622,504

FUND BALANCE

Restricted 14,342,301 $9,844,431 2,945,055 2,049,337 39,061,160 Assigned $43,906 43,906 Unassigned (87) (2,852,876) (8,939,781)

Total Fund Balances (Deficits) 14,342,301 9,844,431 (87) (2,852,876) 2,945,055 2,049,337 43,906 30,165,285

Total Liabilities, Deferred Inflows of Resources and Fund Balances $15,108,442 $9,844,431 $150 $1,046,238 $3,694,769 $2,489,072 $43,906 $48,042,900

176 177 CITY OF RICHMOND NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2018

REVENUES Property taxes $1,521,393 $9,075,692 Licenses, permits and fees $123,002 $51,889 $3,060,347 $1,878,958 $10,938,889 Fines, forfeitures and penalties 19,943 Use of money and property $5,974 13,874 $3,021 12,815 33,501 17,873 $666 1,201 9,626 Intergovernmental 2,731,217 1,700,439 $3,710,793 312,269 5,006,051 Private grants Charges for services 22,521 51,000 3,237,648 Pension stabilization revenue Other 62,974 1,800 5,123 95,434 108,647 3,105 47,135 Rent 3,300

Total Revenues 2,800,165 1,859,058 79,533 3,860,527 423,937 1,534,208 3,096,953 9,093,565 666 1,880,159 19,239,349

EXPENDITURES Current: General government 375,140 1,284,205 73,383 7,431,850 Public safety 651,808 360,310 112,058 1,270,466 384,253 Public works 3,068,653 901,398 2,058,074 106,915 4,965,091 Community development 4,153,100 Cultural and recreational 345,993 5,667 Housing and redevelopment $1,178,247 Capital outlay 130,956 54,940 3,622,566 Debt Service: Principal 75,439 Interest and fiscal charges 2,502

Total Expenditures 3,199,609 2,274,339 1,284,205 4,153,100 360,310 2,136,015 279,580 1,343,849 1,178,247 16,403,760

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (399,444) (415,281) (1,204,672) (292,573) 63,627 (601,807) 2,817,373 7,749,716 666 701,912 2,835,589

OTHER FINANCING SOURCES (USES) Transfers in 999,639 700,877 255,762 1,084,897 Transfers (out) (7,823,380) (622,898)

Total Other Financing Sources (Uses) 999,639 700,877 (7,823,380) 255,762 461,999

NET CHANGE IN FUND BALANCES (399,444) (415,281) (1,204,672) 707,066 63,627 99,070 2,817,373 (73,664) 256,428 701,912 3,297,588

BEGINNING FUND BALANCES (DEFICITS) 717,624 1,099,707 (1,704,077) 1,312,197 261,334 1,123,782 2,317,398 73,664 (80,845) (789,591) (6,387,978) ENDING FUND BALANCES (DEFICITS) $318,180 $684,426 ($2,908,749) $2,019,263 $324,961 $1,222,852 $5,134,771 $175,583 ($87,679) ($3,090,390)

(Continued)

178 179 CITY OF RICHMOND NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2018

REVENUES Property taxes $11,405,083 $22,002,168 Licenses, permits and fees 16,053,085 Fines, forfeitures and penalties 19,943 Use of money and property $77,584 82,629 $612 $7,994 $1,089 $3,560 $2,102 274,121 Intergovernmental 2,831,366 2,401,023 18,693,158 Private grants 9,000,000 9,000,000 Charges for services 5,910,745 9,221,914 Pension stabilization revenue Other 20,000 1,597,375 1,941,593 Rent 3,300

Total Revenues 9,097,584 11,487,712 612 5,918,739 4,429,830 2,404,583 2,102 77,209,282

EXPENDITURES Current: General government 5,689,718 12,000 740,813 15,607,109 Public safety 120,947 2,899,842 Public works 168,833 34,982 906,748 12,210,694 Community development 300,000 4,453,100 Cultural and recreational 261,614 613,274 Housing and redevelopment 1,178,247 Capital outlay 1,253,333 3,904,368 641,471 9,607,634 Debt Service: Principal 6,653,000 1,520,000 1,970,000 10,218,439 Interest and fiscal charges 3,886,206 555,492 6,084,312 10,528,512

Total Expenditures 7,794,445 10,539,206 2,075,492 8,054,312 3,951,350 1,548,219 740,813 67,316,851

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,303,139 948,506 (2,074,880) (2,135,573) 478,480 856,364 (738,711) 9,892,431

OTHER FINANCING SOURCES (USES) Transfers in 235,339 2,075,043 2,510,344 575,148 8,437,049 Transfers (out) (8,446,278)

Total Other Financing Sources (Uses) 235,339 2,075,043 2,510,344 575,148 (9,229)

NET CHANGE IN FUND BALANCES 1,303,139 1,183,845 163 374,771 1,053,628 856,364 (738,711) 9,883,202

BEGINNING FUND BALANCES (DEFICITS) 13,039,162 8,660,586 (250) (3,227,647) 1,891,427 1,192,973 782,617 20,282,083 ENDING FUND BALANCES (DEFICITS) $14,342,301 $9,844,431 ($87) ($2,852,876) $2,945,055 $2,049,337 $43,906 $30,165,285

180 181 CITY OF RICHMOND BUDGETED NON-MAJOR FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018

STATE GAS TAX GENERAL PURPOSE PARATRANSIT OPERATIONS PUBLIC SAFETY LIGHTING AND LANDSCAPING DISTRICTS Variance Variance Variance Variance Variance Positive Positive Positive Positive Positive Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative)

REVENUES Property taxes $1,498,064 $1,521,393 $23,329 Licenses, permits and fees $25,000 $123,002 $98,002 $51,889 $51,889 Fines, forfeitures and penalties 19,000 19,943 943 Use of money and property $5,974 $5,974 13,874 13,874 $634 $3,021 $2,387 2,800 12,815 10,015 Intergovernmental $3,200,990 2,731,217 (469,773) 3,992,461 1,700,439 (2,292,022) $840,000 (840,000) 360,335 312,269 (48,066) Private grants Charges for services 135,000 22,521 (112,479) Pension stabilization revenue Rent Other 62,974 62,974 30,475 1,800 (28,675) 96,000 5,123 (90,877) 38,429 108,647 70,218

Total Revenues 3,200,990 2,800,165 (400,825) 4,066,936 1,859,058 (2,207,878) 1,071,000 79,533 (991,467) 399,398 423,937 24,539 1,500,864 1,534,208 33,344

EXPENDITURES Current: General government 1,117,527 375,140 742,387 1,467,906 1,284,205 183,701 Public safety 887,568 651,808 235,760 411,708 360,310 51,398 Public works 3,269,304 3,068,653 200,651 1,887,090 901,398 985,692 2,303,757 2,058,074 245,683 Community development Cultural and recreational 555,149 345,993 209,156 Housing and redevelopment Capital outlay 108,813 130,956 (22,143) 171,151 171,151 Debt Service: Principal 70,857 75,439 (4,582) Interest and fiscal charges 4,239 2,502 1,737

Total Expenditures 3,378,117 3,199,609 178,508 4,618,485 2,274,339 2,344,146 1,467,906 1,284,205 183,701 411,708 360,310 51,398 2,378,853 2,136,015 242,838

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (177,127) (399,444) (222,317) (551,549) (415,281) 136,268 (396,906) (1,204,672) (807,766) (12,310) 63,627 75,937 (877,989) (601,807) 276,182

OTHER FINANCING SOURCES (USES) Transfers in 590,780 700,877 110,097 Transfers (out) (5,000) 5,000

Total Other Financing Sources (Uses) (5,000) 5,000 590,780 700,877 110,097

NET CHANGE IN FUND BALANCES ($177,127) (399,444) ($222,317) ($556,549) (415,281) $141,268 ($396,906) (1,204,672) ($807,766) ($12,310) 63,627 $75,937 ($287,209) 99,070 $386,279

BEGINNING FUND BALANCES (DEFICITS) 717,624 1,099,707 (1,704,077) 261,334 1,123,782

ENDING FUND BALANCES (DEFICITS) $318,180 $684,426 ($2,908,749) $324,961 $1,222,852

(Continued)

182 183 CITY OF RICHMOND BUDGETED NON-MAJOR FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018

RICHMOND NEIGHBORHOOD STABILIZATION ENVIRONMENTAL AND COMMUNITY DEVELOPER IMPACT FEES CORPORATION RENT CONTROL COST RECOVERY INVESTMENT AGREEMENT Variance Variance Variance Variance Variance Positive Positive Positive Positive Positive Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative)

REVENUES Property taxes Licenses, permits and fees $2,867,688 $3,060,347 $192,659 $2,425,338 $1,878,958 ($546,380) Fines, forfeitures and penalties $5,884,012 $10,938,889 $5,054,877 Use of money and property 2,433 33,501 31,068 $666 $666 1,201 1,201 9,626 9,626 $77,584 $77,584 Intergovernmental 6,961,658 5,006,051 (1,955,607) Private grants $9,000,000 9,000,000 Charges for services 3,730,759 3,237,648 (493,111) Pension stabilization revenue Rent Other 3,105 3,105 $538,306 (538,306) 3,000 47,135 44,135 20,000 20,000

Total Revenues 2,873,226 3,096,953 223,727 538,306 666 (537,640) 2,425,338 1,880,159 (545,179) 16,579,429 19,239,349 2,659,920 9,000,000 9,097,584 97,584

EXPENDITURES Current: General government 8,980,008 7,431,850 1,548,158 8,925,405 5,689,718 3,235,687 Public safety 322,628 112,058 210,570 384,253 (384,253) 149,624 120,947 28,677 Public works 679,139 106,915 572,224 4,813,365 4,965,091 (151,726) 220,000 168,833 51,167 Community development 300,000 300,000 Cultural and recreational 421,000 5,667 415,333 965,000 261,614 703,386 Housing and redevelopment 89,812 89,812 1,951,919 1,178,247 773,672 Capital outlay 138,373 54,940 83,433 4,570,850 3,622,566 948,284 2,129,315 1,253,333 875,982 Debt Service: Principal Interest and fiscal charges

Total Expenditures 1,561,140 279,580 1,281,560 89,812 89,812 1,951,919 1,178,247 773,672 18,364,223 16,403,760 1,960,463 12,689,344 7,794,445 4,894,899

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,312,086 2,817,373 1,505,287 448,494 666 (447,828) 473,419 701,912 228,493 (1,784,794) 2,835,589 4,620,383 (3,689,344) 1,303,139 4,992,483

OTHER FINANCING SOURCES (USES) Transfers in 255,762 255,762 1,084,897 1,084,897 Transfers (out) (260,202) 260,202 (622,898) (622,898)

Total Other Financing Sources (Uses) (260,202) 255,762 515,964 461,999 461,999

NET CHANGE IN FUND BALANCES $1,312,086 2,817,373 $1,505,287 $188,292 256,428 $68,136 $473,419 701,912 $228,493 ($1,322,795) 3,297,588 $4,620,383 ($3,689,344) 1,303,139 $4,992,483

BEGINNING FUND BALANCES (DEFICITS) 2,317,398 (80,845) (789,591) (6,387,978) 13,039,162

ENDING FUND BALANCES (DEFICITS) $5,134,771 $175,583 ($87,679) ($3,090,390) $14,342,301

(Continued)

184 185 CITY OF RICHMOND BUDGETED NON-MAJOR FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018

2005 PENSION OBLIGATION BONDS GENERAL DEBT SERVICE CIVIC CENTER DEBT SERVICE Variance Variance Variance Positive Positive Positive Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative)

REVENUES Property taxes $11,405,083 $11,405,083 Licenses, permits and fees Fines, forfeitures and penalties Use of money and property 82,629 $82,629 $612 $612 $7,994 $7,994 Intergovernmental Private grants Charges for services $5,808,919 5,910,745 101,826 Pension stabilization revenue Rent Other

Total Revenues 11,405,083 11,487,712 82,629 612 612 5,808,919 5,918,739 109,820

EXPENDITURES Current: General government Public safety Public works Community development Cultural and recreational Housing and redevelopment Capital outlay Debt Service: Principal 6,653,000 6,653,000 $1,520,000 1,520,000 1,970,000 1,970,000 Interest and fiscal charges 5,805,973 3,886,206 1,919,767 555,543 555,492 51 6,082,263 6,084,312 (2,049)

Total Expenditures 12,458,973 10,539,206 1,919,767 2,075,543 2,075,492 51 8,052,263 8,054,312 (2,049)

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,053,890) 948,506 2,002,396 (2,075,543) (2,074,880) 663 (2,243,344) (2,135,573) 107,771

OTHER FINANCING SOURCES (USES) Transfers in 221,855 235,339 13,484 2,075,043 2,075,043 2,510,344 2,510,344 Transfers (out)

Total Other Financing Sources (Uses) 221,855 235,339 13,484 2,075,043 2,075,043 2,510,344 2,510,344

NET CHANGE IN FUND BALANCES ($832,035) 1,183,845 $2,015,880 ($500) 163 $663 $267,000 374,771 $107,771

BEGINNING FUND BALANCES (DEFICITS) 8,660,586 (250) (3,227,647)

ENDING FUND BALANCES (DEFICITS) $9,844,431 ($87) ($2,852,876)

186 187 CITY OF RICHMOND JUNE 30, 2018

NON-MAJOR ENTERPRISE FUNDS

Richmond Marina Fund records revenues collected from berth rentals and the use of the marina facilities. The fund also records expenses incurred for the operation of the facility and for the payment of the loan from the California Department of Boating and Waterways.

Storm Sewer Fund records the revenues from storm water fees and transfers from operations reserves. It also records the expenses of maintaining a clean storm sewer system so that the City is in compliance with the federally mandated Storm Water Pollution Prevention Program.

Cable TV Fund was set up for the administration and enforcement of the franchise agreements with two cable television systems, management of municipal cable channel, departmental video services, media and public information, and telecommunications planning. The fund records revenue received from franchise fees and indirect charges to other funds and administration expenses incurred in operating the system.

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189 CITY OF RICHMOND CITY OF RICHMOND NON-MAJOR ENTERPRISE FUNDS NON-MAJOR ENTERPRISE FUNDS COMBINING STATEMENTS OF NET POSITION COMBINING STATEMENTS OF REVENUES, EXPENSES AND JUNE 30, 2018 CHANGES IN FUND NET POSITION Richmond Storm Cable FOR THE YEAR ENDED JUNE 30, 2018 Marina Sewer TV Total ASSETS Current Assets Cash and investments $3,732,548 $3,732,548 Richmond Storm Cable Restricted cash and investments 83,773 83,773 Marina Sewer TV Total Receivables: Accounts 73,646 $1,711 $353,072 428,429 OPERATING REVENUES Interest 8,089 8,089 Service charges $2,063,828 $1,281,952 $3,345,780 Prepaids Lease income $537,438 4,282 541,720 Total Current Assets 3,898,056 1,711 353,072 4,252,839 Other

Noncurrent Assets Total Operating Revenues 537,438 2,068,110 1,281,952 3,887,500 Capital assets: Nondepreciable 24,477 24,477 OPERATING EXPENSES Depreciable, net 1,444,779 1,028,467 4,163 2,477,409 Salaries and benefits 230,236 1,324,528 1,554,764 Advances to other funds 167,451 167,451 General and administrative 24,406 1,312,993 366,665 1,704,064 Total Noncurrent Assets 1,469,256 1,195,918 4,163 2,669,337 Maintenance 99,419 99,419 Total Assets 5,367,312 1,197,629 357,235 6,922,176 Depreciation 85,563 45,088 5,868 136,519 Other 94 94 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 70,793 544,280 615,073 Total Operating Expenses 209,388 1,588,317 1,697,155 3,494,860 Deferred outflows related to OPEB 3,527 62,779 66,306 Total Deferred Outflows of Resources 74,320 607,059 681,379 Operating Income (Loss) 328,050 479,793 (415,203) 392,640 LIABILITIES NONOPERATING REVENUES (EXPENSES) Current Liabilities Grants Accounts payable and accrued liabilities 172,964 4,222 177,186 Interest income 35,919 589 36,508 Refundable deposits 83,773 1,200 84,973 Interest (expense) (118,054) (73,491) (191,545) Interest payable 107,923 107,923 Due to other funds 904,974 56,956 961,930 Total Nonoperating Revenues (Expenses) (82,135) (73,491) 589 (155,037) Compensated absences 16,876 37,295 54,171 Current portion of long term debt 89,081 89,081 Income (Loss) Before Transfers 245,915 406,302 (414,614) 237,603 Total Current Liabilities 280,777 1,096,014 98,473 1,475,264 Noncurrent Liabilities Transfers out (86,778) (86,778) Advance from other funds 2,360,403 2,360,403 Long-term debt 2,527,227 2,527,227 Change in Net Position 159,137 406,302 (414,614) 150,825 Net pension liability 330,533 2,541,250 2,871,783 Net OPEB liability 93,872 1,670,919 1,764,791 BEGINNING NET POSITION (DEFICIT), AS RESTATED 2,400,171 (3,022,449) (2,999,111) (3,621,389) Total Noncurrent Liabilities 2,527,227 2,784,808 4,212,169 9,524,204 Total Liabilities 2,808,004 3,880,822 4,310,642 10,999,468 ENDING NET POSITION $2,559,308 ($2,616,147) ($3,413,725) ($3,470,564) DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 6,141 47,212 53,353 Deferred inflows related to OPEB 1,133 20,165 21,298 Total Deferred Inflows of Resources 7,274 67,377 74,651 NET POSITION Net investment in capital assets (1,063,279) 1,028,467 4,163 (30,649) Unrestricted 3,622,587 (3,644,614) (3,417,888) (3,439,915) Total Net Position $2,559,308 ($2,616,147) ($3,413,725) ($3,470,564)

190 191 CITY OF RICHMOND CITY OF RICHMOND NON-MAJOR ENTERPRISE FUNDS COMBINING STATEMENTS OF CASH FLOWS JUNE 30, 2018 FOR THE YEAR ENDED JUNE 30, 2018

INTERNAL SERVICE FUNDS

Richmond Storm Cable Marina Sewer TV TOTAL Internal Service Funds are used to finance and account for special activities and services performed by a designated department for other departments in the City on a cost reimbursement basis. CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $541,516 $2,069,885 $1,259,249 $3,870,650 The concept of major funds introduced by GASB Statement 34 does not extend to internal service funds Payments to suppliers (129,713) (1,421,961) (366,315) (1,917,989) Payments to employees (136,814) (1,044,788) (1,181,602) because they do not do business with outside parties. GASB Statement 34 requires that for the Statement of Activities, the net revenues or expenses of each internal service fund be eliminated by netting them Cash Flows from Operating Activities 411,803 511,110 (151,854) 771,059 against the operations of the other City departments which generated them. The remaining balance sheet items are consolidated with these same funds in the Statement of Net Position. CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (86,778) (86,778) However, internal service funds are still presented separately in the Fund financial statements, including the Interfund receipts (payments) (437,628) 56,956 (380,672) funds below.

Cash Flows from Noncapital Financing Activities (86,778) (437,628) 56,956 (467,450) Insurance Reserves Fund is used to report activities related to employee’s claims due to industrial CASH FLOWS FROM CAPITAL injuries and activities related to general claims against the City for damages incurred. FINANCING ACTIVITIES: Grants Equipment Services and Replacement Fund is used to report activities related to maintenance and Acquisition of capital assets (24,478) 1 (24,477) replacement of City vehicles. Repayment of long-term borrowing (85,245) (85,245) Interest paid (121,570) (73,491) (195,061) Police Telecommunications Fund is used to report activities related to CAD dispatch, RMS records Cash flows from capital financing activities (231,293) (73,490) (304,783) maintenance, and 800 MHz equipment expense.

CASH FLOWS FROM INVESTING ACTIVITIES: Compensated Absences Fund is used to account for sick, vacation and compensatory time leave payouts Interest received 31,733 765 32,498 related to employee retirements. Cash Flows from Investing Activities 31,733 765 32,498

Net Cash Flows 125,465 (8) (94,133) 31,324

Cash and investments at beginning of period 3,690,856 8 94,133 3,784,997

Cash and investments at end of period $3,816,321 $3,816,321

Reconciliation of operating income (loss) to net cash flows from operating activities: Operating income (loss) $328,050 $479,793 ($415,203) $392,640 Adjustments to reconcile operating income to net cash flows from operating activities: Depreciation 85,563 45,088 5,868 136,519 Change in assets and liabilities: Accounts receivable 4,078 1,775 (22,703) (16,850) Prepaids 608 608 Accounts payable and accrued liabilities and other accrued expenses (5,888) (108,968) (164) (115,020) Compensated absences 9,460 (10,118) (658) Net pension liability and deferred outflows/inflows of resources 83,552 282,558 366,110 Net OPEB liability and deferred outflows/inflows of resources 410 7,300 7,710

Cash Flows from Operating Activities $411,803 $511,110 ($151,854) $771,059

192 193 CITY OF RICHMOND CITY OF RICHMOND INTERNAL SERVICE FUNDS INTERNAL SERVICE FUNDS COMBINING STATEMENTS OF NET POSITION COMBINING STATEMENTS OF REVENUES, EXPENSES AND JUNE 30, 2018 CHANGES IN NET POSITION Equipment Police FOR THE YEAR ENDED JUNE 30, 2018 Insurance Services and Tele- Compensated Reserves Replacement communications Absences Total Equipment Police Insurance Services and Tele- Compensated ASSETS Reserves Replacement communications Absences Total Current Assets Cash and investments $19,348,889 $1,849,033 $909,626 $22,107,548 OPERATING REVENUES Restricted cash and investments 1,230,731 1,230,731 Charges for services-internal $19,248,324 $1,253,000 $3,931,905 $2,156,267 $26,589,496 Receivables: Charges for services-external 1,007,391 1,007,391 Accounts 73,353 76,632 149,985 Interest 72,783 1,331 2,634 76,748 Total Operating Revenues 19,248,324 1,253,000 4,939,296 2,156,267 27,596,887 Loan 150,000 150,000 Due from other funds 14,467,306 14,467,306 OPERATING EXPENSES Total Current Assets 34,112,331 3,081,095 988,892 38,182,318 Salaries and benefits 1,559,549 3,787,143 2,156,273 7,502,965 General and administrative 1,361,785 7,535 980,497 2,349,817 Noncurrent Assets Maintenance 2,774,204 64,671 96,379 2,935,254 Capital assets: Depreciation 1,151,488 5,228 1,156,716 Nondepreciable 1,451,985 1,451,985 Depreciable, net 4,469,296 70,053 4,539,349 Claims losses 12,509,419 12,509,419 Advances to other funds 2,360,403 2,360,403 Other 11,029 11,029 Total Noncurrent Assets 2,360,403 5,921,281 70,053 8,351,737 Total Operating Expenses 18,215,986 1,223,694 4,869,247 2,156,273 26,465,200 Total Assets 36,472,734 9,002,376 1,058,945 46,534,055 Operating Income (Loss) 1,032,338 29,306 70,049 (6) 1,131,687 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 774,178 774,178 NONOPERATING REVENUES (EXPENSES) Deferred outflows related to OPEB 77,592 77,592 Gain (loss) from sale of property (5,372) (5,372) Total Deferred Outflows of Resources 851,770 851,770 Grants 779,596 1,255,325 2,034,921 Interest income 394,166 7,065 401,231 LIABILITIES Interest expense (16,287) (16,287) Current Liabilities Accounts payable and accrued liabilities 233,487 47,716 6,221 287,424 Total Nonoperating Revenues (Expenses) 1,173,762 1,240,731 2,414,493 Interest payable 12,565 12,565 Accrued claims liabilities 11,120,445 11,120,445 Income (Loss) Before Transfers 2,206,100 1,270,037 70,049 (6) 3,546,180 Current portion of long-term debt 224,192 224,192 Total Current Liabilities 11,353,932 284,473 6,221 11,644,626 Transfers in 200,000 283,520 483,520

Noncurrent Liabilities Change in Net Position 2,406,100 1,553,557 70,049 (6) 4,029,700 Compensated absences 73,851 158,225 232,076 Unearned revenue 783,820 783,820 BEGINNING NET POSITION (DEFICIT), Accrued claims liabilities 26,587,129 26,587,129 AS RESTATED (8,868,414) 4,700,893 40,630 6 (4,126,885) Long-term debt, net 2,463,453 2,463,453 Net pension liability 3,614,648 3,614,648 ENDING NET POSITION (DEFICIT) ($6,462,314) $6,254,450 $110,679 ($97,185) Net OPEB liability 2,065,181 2,065,181 Total Noncurrent Liabilities 32,340,809 2,463,453 942,045 35,746,307 Total Liabilities 43,694,741 2,747,926 948,266 47,390,933 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 67,154 67,154 Deferred inflows related to OPEB 24,923 24,923 Total Deferred Inflows of Resources 92,077 92,077 NET POSITION (DEFICIT) Net investment in capital assets 4,464,367 70,053 4,534,420 Unrestricted (6,462,314) 1,790,083 40,626 (4,631,605) Total Net Position (Deficit) ($6,462,314) $6,254,450 $110,679 ($97,185)

194 195 CITY OF RICHMOND CITY OF RICHMOND INTERNAL SERVICE FUNDS JUNE 30, 2018 COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2018

Equipment Police TRUST FUNDS Insurance Services and Tele- Compensated Reserves Replacement communications Absences Total TRUST FUNDS are used to account for assets held by the City as a trustee agent for individuals, private CASH FLOWS FROM OPERATING ACTIVITIES organizations, and other governments. These funds include the following: Receipts from customers $19,374,971 $1,253,000 $4,523,317 $2,156,267 $27,307,555 Payments to employees (1,661,059) (3,799,028) (2,156,273) (7,616,360) PENSION TRUST FUNDS Payments to suppliers (4,258,484) (32,689) (1,073,948) (5,365,121) Insurance premiums and claims paid (11,330,259) (11,330,259) General Pension Fund records the activity of the General Pension Plan, a defined benefit pension plan Cash Flows from Operating Activities 2,125,169 1,220,311 (349,659) (6) 2,995,815 that covers 28 former City employees not covered by PERS, all of whom have retired. CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Police and Firemen’s Pension Fund records the activity of the Police and Firemen’s Pension Plan, a Interfund receipts 3,343,754 3,343,754 defined benefit pension plan that covers 75 police and fire personnel employed prior to October 1964. Transfers in 200,000 283,520 483,520 Cash Flows from Noncapital Financing Activities 3,543,754 283,520 3,827,274 Garfield Pension Fund records the activity of the Garfield Pension Plan, a defined contribution pension plan that was set up for a retired police chief. CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES OPEB TRUST FUND Grant receipts 779,596 1,255,325 2,034,921 Acquisition of capital assets (2,629,436) (75,281) (2,704,717) Issuance of long-term debt 2,687,645 2,687,645 OPEB Plan Fund was established to account for the medical benefits for former employees of the City. Principal payments on capital debt (168,760) (168,760) Interest and fiscal charges paid (3,805) (3,805) PRIVATE-PURPOSE TRUST FUNDS Cash Flows from Capital and Related Financing Activities 779,596 1,140,969 (75,281) 1,845,284 Pt. Molate Fund is used to account for assets held by the City as an agent for the U.S. Navy and a private developer for the cleanup of Point Molate. CASH FLOWS FROM INVESTING ACTIVITIES Interest 354,974 6,481 (1,570) 359,885 Successor Agency to the Richmond Community Redevelopment Agency Fund accounts for the Cash Flows from Investing Activities 354,974 6,481 (1,570) 359,885 activities of the Successor Agency to the former Redevelopment Agency.

Net Cash Flows 6,803,493 2,651,281 (426,510) (6) 9,028,258

Cash and investments at beginning of period 12,545,396 428,483 1,336,136 6 14,310,021 Cash and investments at end of period $19,348,889 $3,079,764 $909,626 $23,338,279

Reconciliation of operating income (loss) to net cash flows from operating activities: Operating income (loss) $1,032,338 $29,306 $70,049 ($6) $1,131,687 Adjustments to reconcile operating income to net cash flows from operating activities: Depreciation 1,151,488 5,228 1,156,716 Change in assets and liabilities: Receivables, net 126,647 183,202 309,849 Prepaids 5,300 5,300 Accounts and other payables (111,466) 39,517 (2,372) (74,321) Unearned revenue (599,181) (599,181) Compensated absences 16,561 (11,885) 4,676 Claims payable 1,179,160 1,179,160 (Decrease) increase in due to retirement system (127,094) (127,094) (Decrease) increase in due to OPEB 9,023 9,023 Cash Flows from Operating Activities $2,125,169 $1,220,311 ($349,659) ($6) $2,995,815

Non cash transactions: Retirement of capital assets ($5,372) ($5,372)

196 197 CITY OF RICHMOND CITY OF RICHMOND PENSION AND OPEB TRUST FUNDS PENSION AND OPEB TRUST FUNDS COMBINING STATEMENT OF NET POSITION COMBINING STATEMENT OF CHANGES IN NET POSITION JUNE 30, 2018 FOR THE YEAR ENDED JUNE 30, 2018

PENSION PENSION

Police and Police and General Firemen's Garfield OPEB C General Firemen's Garfield OPEB C Pension Pension Pension Plan Total Pension Pension Pension Plan Total

ASSETS ADDITIONS

Pension and OPEB plan cash and investments: Net investment income: $632,089 $632,089 City of Richmond investment pool $741,688 $652,968 $131,418 $1,526,074 Local Agency Investment Fund 176,245 176,245 Interest income $2,195 $254,046 $2,620 $258,861 Mutual fund investments 10,932,280 $17,422,879 28,355,159 Receivables: Net increase (decrease) in the fair value of investments 12 400,794 7 400,813 Accounts Interest 45 2,331 98 2,474 Investment management fees (65,812) (65,812)

Total Assets 741,733 11,587,579 307,761 17,422,879 30,059,952 Contributions to trust - employer 814,594 1,270,466 102,140 13,599,120 15,786,320

NET POSITION Contributions to trust - employee 765,475 765,475

Restricted for employees' pension and OPEB benefits $741,733 $11,587,579 $307,761 $17,422,879 $30,059,952 Total Additions 816,801 1,859,494 104,767 14,996,684 17,777,746 DEDUCTIONS

Pension and OPEB benefits 524,939 2,656,508 94,323 6,861,529 10,137,299

Other 49,169 49,169

Total Deductions 524,939 2,656,508 94,323 6,910,698 10,186,468

Net Increase (Decrease) 291,862 (797,014) 10,444 8,085,986 7,591,278

NET POSITION RESTRICTED FOR PENSION AND OPEB BENEFITS

Beginning of year 449,871 12,384,593 297,317 9,336,893 22,468,674

End of year $741,733 $11,587,579 $307,761 $17,422,879 $30,059,952

198 199 CITY OF RICHMOND CITY OF RICHMOND PRIVATE PURPOSE TRUST FUNDS PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION COMBINING STATEMENT OF CHANGES IN NET POSITION JUNE 30, 2018 FOR THE YEAR ENDED JUNE 30, 2018

Successor Agency to the Successor Richmond Community Agency to the Pt. Molate Redevelopment Agency Total Richmond Community Pt. Molate Redevelopment Agency Total ASSETS ADDITIONS Cash and investments $15,051,204 $15,051,204 Property taxes $12,255,069 $12,255,069 Restricted cash and investments $3,220,147 21,746,419 24,966,566 Investment income $12,409 1,145,394 1,157,803 Intergovernmental revenue 4,898,936 4,898,936 Accounts receivable 177,409 177,409 Proceeds from sale of property 1,614,529 1,614,529 Miscellaneous revenue 398,321 398,321 Grants receivable 2,177,084 2,177,084 Total Additions 12,409 20,312,249 20,324,658 Loans receivable 1,574,000 1,574,000 DEDUCTIONS Prepaids and other assets 6,366,928 6,366,928 Community development 4,835,285 4,835,285 Capital assets: Payments in accordance with trust agreements 444,739 444,739 Nondepreciable 4,313,167 4,313,167 Interest and fiscal charges 4,993,687 4,993,687

Total Assets 3,220,147 51,406,211 54,626,358 Total Deductions 444,739 9,828,972 10,273,711

Change in net position (432,330) 10,483,277 10,050,947

LIABILITIES NET POSITION (DEFICIT), BEGINNING OF YEAR 3,652,477 (59,835,105) (56,182,628)

Accounts payable and accrued liabilities 916,416 916,416 NET POSITION (DEFICIT), END OF YEAR $3,220,147 ($49,351,828) ($46,131,681) Interest payable 1,203,574 1,203,574

Derivative instrument at fair value-liability 4,033,000 4,033,000

Long-term debt: Due within one year 8,227,087 8,227,087 Due in more than one year 86,377,962 86,377,962

Total Liabilities 100,758,039 100,758,039

NET POSITION

Held in trust other governments $3,220,147 ($49,351,828) ($46,131,681)

200 201 CITY OF RICHMOND SUBCOMBINING SCHEDULE OF NET POSITION OF THE SUCCESSOR AGENCY TO THE RICHMOND COMMUNITY REDEVELOPMENT AGENCY PRIVATE PURPOSE TRUST FUNDS JUNE 30, 2018

Redevelopment Bond Funded Property Tax Capital Capital Bond Intra Fund Trust Fund Administration Projects Projects Payments Eliminations Total

ASSETS

Cash and investments $10,282,073 $6,238 $4,762,893 $15,051,204

Restricted cash and investments 2,065,472 $148,735 $19,532,212 21,746,419

Accounts receivable 2,225 175,184 177,409

Grants receivable 2,177,084 2,177,084

Loans receivable 1,574,000 1,574,000

Due from other funds 36,993 ($36,993)

Prepaids and other assets 6,366,928 6,366,928

Capital assets: Nondepreciable 4,313,167 4,313,167

Total Assets 10,282,073 8,463 21,471,721 148,735 19,532,212 (36,993) 51,406,211

LIABILITIES

Accounts payable and accrued liabilities 8,464 906,702 1,250 916,416

Due to other funds 36,993 (36,993)

Interest payable 1,203,574 1,203,574

Derivative instrument at fair value-liability 4,033,000 4,033,000

Long-term debt: Due within one year 8,227,087 8,227,087 Due in more than one year 86,377,962 86,377,962

Total Liabilities 8,464 906,702 36,993 99,842,873 (36,993) 100,758,039

NET POSITION (DEFICIT)

Held in trust for other governments $10,282,073 ($1) $20,565,019 $111,742 ($80,310,661) ($49,351,828)

202 203 CITY OF RICHMOND SUBCOMBINING SCHEDULE OF CHANGES IN NET POSITION OF THE SUCCESSOR AGENCY TO THE RICHMOND COMMUNITY REDEVELOPMENT AGENCY PRIVATE PURPOSE TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2018

Redevelopment Bond Funded Property Tax Capital Capital Bond Intra Fund Trust Fund Administration Projects Projects Payments Eliminations Total

ADDITIONS

Property taxes $12,255,069 $12,255,069 Investment income $99,796 $1,557 $1,044,041 1,145,394 Intergovernmental revenue 4,898,936 4,898,936 Transfers from other funds $522,252 437,773 12,693,675 ($13,653,700) Proceeds from sale of property 1,614,529 1,614,529 Miscellaneous revenue 398,321 398,321

Total Additions 12,255,069 522,252 7,449,355 1,557 13,737,716 (13,653,700) 20,312,249

DEDUCTIONS

Community development 522,254 3,053,002 1,260,029 4,835,285 Interest and fiscal charges 4,993,687 4,993,687 Transfers to other funds 12,960,693 652,234 40,773 (13,653,700)

Total Deductions 12,960,693 522,254 3,705,236 40,773 6,253,716 (13,653,700) 9,828,972

Change in net position (705,624) (2) 3,744,119 (39,216) 7,484,000 10,483,277

NET POSITION (DEFICIT), BEGINNING OF YEAR 10,987,697 1 16,820,900 150,958 (87,794,661) (59,835,105)

NET POSITION (DEFICIT), END OF YEAR $10,282,073 ($1) $20,565,019 $111,742 ($80,310,661) ($49,351,828)

204 205 CITY OF RICHMOND JUNE 30, 2018

AGENCY FUNDS

AGENCY FUNDS account for assets held by the City as an agent for individuals, governmental entities, and non-public organizations. These funds include the following:

Special Assessment Fund accounts for the monies collected and disbursed for land-based debt, where the City is not obligated for the debt.

General Agency Fund accounts for assets held by the City as an agent for individuals, private organizations, and other governments.

Johnson Library Fund accounts for nonexpendable trust funds to be used to provide funding for special library projects.

Senior Center Fund accounts for assets held by the City in an agent capacity for programs benefiting the senior citizens residing within the City.

JPFA Reassessment Fund receives secured tax payments (from assessment rolls), and makes payments on the JPFA Revenue Reassessment Bonds; Series 2011A.

Payroll Benefits Fund accounts for accumulation of monies relating to employee and employer payroll liabilities.

This Page Left Intentionally Blank 2006 A&B Reassessment District Fund receives payments of principal and interest on prior assessment bonds, and makes payments on the JPFA Reassessment Revenue Bonds Series A and B.

207 CITY OF RICHMOND CITY OF RICHMOND AGENCY FUNDS AGENCY FUNDS COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED JUNE 30, 2018 FOR THE YEAR ENDED JUNE 30, 2018

Balance Balance Balance Balance June 30, 2017 Additions Reductions June 30, 2018 June 30, 2017 Additions Reductions June 30, 2018 Special Assessment JPFA Reassessment Cash and investments $914,106 $311,031 $318,287 $906,850 Cash and investments $2,537,694 $960,933 $810,056 $2,688,571 Restricted cash and investments 341,408 1,900 343,308 Restricted cash and investments 661,567 8,680 652,887 Interest receivable 985 1,799 985 1,799 Interest receivable 2,738 5,697 2,738 5,697 Total Assets $1,256,499 $314,730 $319,272 $1,251,957 Investment in reassessment bonds 2,255,000 605,000 1,650,000 Due to assessment district bondholders $1,256,499 $314,730 $319,272 $1,251,957 Total Assets $5,456,999 $966,630 $1,426,474 $4,997,155 General Agency Accounts payable and accrued liabilities $82 $82 Cash and investments $1,236,124 $101,853 $124,268 $1,213,709 Due to assessment district bondholders $5,456,999 966,548 $1,426,474 4,997,073

Restricted cash and investments 16,679 16,679 Total Liabilities $5,456,999 $966,630 $1,426,474 $4,997,155 Interest receivable 1,356 2,569 1,356 2,569

Total Assets $1,237,480 $121,101 $125,624 $1,232,957 Payroll Benefits Cash and investments $1,621,296 $431,014 $1,190,282 Accounts payable and accrued liabilities $44,888 $6,185 $44,888 $6,185 Accounts receivable $345,968 431,012 345,968 431,012 Refundable Deposits 1,192,592 114,916 80,736 1,226,772 Total Assets $345,968 $2,052,308 $776,982 $1,621,294 Total Liabilities $1,237,480 $121,101 $125,624 $1,232,957 Accounts payable and accrued liabilities $345,968 $2,052,308 $776,982 $1,621,294 Johnson Library

Cash and investments $10,286 $114 $22 $10,378 2006 A&B Reassessment District

Interest receivable 11 23 11 23 Cash and investments $692,960 $780,265 $674,484 $798,741

Total Assets $10,297 $137 $33 $10,401 Restricted cash and investments 91,929 107,296 199,225

Refundable deposits $10,297 $137 $33 $10,401 Interest receivable 719 1,564 719 1,564 Senior Center Investment in reassessment bonds 8,065,000 379,393 7,685,607

Cash and investments $78,344 $53,824 $68,960 $63,208 Total Assets $8,850,608 $889,125 $1,054,596 $8,685,137

Interest receivable 80 158 80 158 Accounts payable and accrued liabilities $226 $226 Total Assets $78,424 $53,982 $69,040 $63,366 Due to assessment district bondholders $8,850,608 888,899 $1,054,596 8,684,911

Accounts payable and accrued liabilities $11,572 $3,618 $11,572 $3,618 Total Liabilities $8,850,608 $889,125 $1,054,596 $8,685,137

Refundable Deposits 66,852 50,364 57,468 59,748 (Continued) Total Liabilities $78,424 $53,982 $69,040 $63,366

(Continued)

208 209 CITY OF RICHMOND CITY OF RICHMOND AGENCY FUNDS JUNE 30, 2018 COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED JUNE 30, 2018

STATISTICAL SECTION Balance Balance June 30, 2017 Additions Reductions June 30, 2018 This part of the City’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary Total Agency Funds information says about the City’s overall financial health. In contrast to the financial section, the statistical section information is not subject to independent audit.

Cash and investments $5,469,514 $3,829,316 $2,427,091 $6,871,739 Financial Trends These schedules contain trend information to help the reader understand how the City’s financial performance and Restricted cash and investments 1,094,904 125,875 8,680 1,212,099 wellbeing have changed over time:

Investment in reassessment bonds 10,320,000 984,393 9,335,607 1. Net Position by Component 2. Changes in Net Position Accounts receivable 345,968 431,012 345,968 431,012 3. Fund Balances of Governmental Funds 4. Changes in Fund Balance of Governmental Funds Interest receivable 5,889 11,810 5,889 11,810 Revenue Capacity Total Assets $17,236,275 $4,398,013 $3,772,021 $17,862,267 These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax: Accounts payable and accrued liabilities $402,428 $2,062,419 $833,442 $1,631,405 1. Assessed and Estimated Actual Value of Taxable Property Refundable Deposits 1,269,741 165,417 138,237 1,296,921 2. Property Tax Rates, All Overlapping Governments 3. Principal Property Tax Payers Due to assessment district bondholders 15,564,106 2,170,177 2,800,342 14,933,941 4. Property Tax Levies and Collections 5. Utility Users Tax Collections Total Liabilities $17,236,275 $4,398,013 $3,772,021 $17,862,267 6. Utility Users Tax Direct Rates 7. Top Ten Utility Users Taxpayers

Debt Capacity These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future:

1. Ratio of Outstanding Debt by Type 2. Revenue Bond Coverage – 1999, 2006, 2008, 2010A & 2010B Wastewater Revenue Bonds 3. Revenue Bond Coverage – 1996, 1999, 2004, 2007 and 2009 Port Terminal Lease Revenue Bonds, Note and Point Potrero Lease Revenue Bonds. 4. General Bonded Debt – Pension Obligation Bonds 5. Bonded Debt Pledged Revenue Coverage –Tax Allocation Bonds all Refunding Bonds 6. Computation of Direct and Overlapping Debt 7. Computation of Legal Bonded Debt Margin

Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place:

1. Demographic and Economic Statistics 2. Principal Employers

210 211 CITY OF RICHMOND JUNE 30, 2018

Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs:

1. Full-Time Equivalent City Government Employees by Function 2. Operating Indicators by Function/Program 3. Capital Asset Statistics by Function/Program

Sources Unless otherwise noted, the information in these schedules is derived from the Annual Financial Reports for the relevant year.

This Page Left Intentionally Blank

212 CITY OF RICHMOND Net Position by Component Last Ten Fiscal Years (accrual basis of accounting)

$600,000

$400,000

$200,000

Thousands ($200,000)

($400,000)

($600,000)

Net Investment in Capital Assets Restricted Unrestricted

Fiscal Year Ended June 30 Fiscal Year Ended June 30 2009 2010 2011 (a) 2012 (b) 2013 (c) (d) 2014 2015 (e) 2016 2017 2018(f) Governmental activities Net investment in capital assets $201,607,368 $201,197,639 $164,739,567 $242,281,323 $214,572,546 $227,828,243 $218,144,811 $228,292,389 $233,619,046 $221,336,363 Restricted 135,801,179 72,114,985 78,105,002 57,989,820 55,396,056 50,461,923 54,578,939 70,322,707 76,810,440 87,380,363 Unrestricted (57,236,422) (66,103,671) (83,013,306) (118,620,471) (119,231,699) (148,161,106) (479,961,080) (508,981,299) (504,602,583) (625,067,289) Total governmental activities net position $280,172,125 $207,208,953 $159,831,263 $181,650,672 $150,736,903 $130,129,060 ($207,237,330) ($210,366,203) ($194,173,097) ($316,350,563)

Business-type activities Net investment in capital assets $79,540,643 $86,432,590 $78,162,970 $76,731,871 $76,966,448 $72,911,000 $74,922,303 $63,405,228 $71,000,240 $68,213,687 Restricted 612,613 21,150,740 8,334,722 8,169,878 9,196,255 9,793,767 9,408,237 9,008,038 9,441,288 9,514,522 Unrestricted (3,963,417) (42,004,396) (16,389,951) (24,759,367) (6,365,742) (3,096,845) (18,432,590) (23,382,659) (24,096,174) (27,908,968) Total business-type activities net position $76,189,839 $65,578,934 $70,107,741 $60,142,382 $79,796,961 $79,607,922 $65,897,950 $49,030,607 $56,345,354 $49,819,241

Primary government Net investment in capital assets $281,148,011 $287,630,229 $242,902,537 $319,013,194 $291,538,994 $300,739,243 $293,067,114 $291,697,617 $304,619,286 $289,550,050 Restricted 136,413,792 93,265,725 86,439,724 66,159,698 64,592,311 60,255,690 63,987,176 79,330,745 86,251,728 96,894,885 Unrestricted (61,199,839) (108,108,067) (99,403,257) (143,379,838) (125,597,441) (151,257,951) (498,393,670) (532,363,958) (528,698,757) (652,976,257) Total primary government net position $356,361,964 $272,787,887 $229,939,004 $241,793,054 $230,533,864 $209,736,982 ($141,339,380) ($161,335,596) ($137,827,743) ($266,531,322)

(a) Balance was restated in fiscal year 2012. Years prior to 2011 have not been restated. (b) Balance was restated in fiscal year 2013. Years prior to 2012 have not been restated. (c) The City implemented the provisions of GASB Statement 63 in fiscal year 2013, which replaced the term "net assets" with the term "net position". (d) Balance was restated in fiscal year 2014. Years prior to 2013 have not been restated. (e) The City implemented the provisions of GASB Statement No. 68 in fiscal year 2015. Years prior to 2015 have not been restated. (f) The City implemented the provisions of GASB Statement No. 75 in fiscal year 2018. Years prior to 2018 have not been restated.

214 215 CITY OF RICHMOND Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting)

Fiscal Year Ended June 30 Fiscal Year Ended June 30 2009 2010 2011 2012 2013 (b) 2014 2015 (c) 2016 2017 2018 (d) Expenses Governmental Activities: General Government $18,745,594 $19,044,449 $17,127,696 $32,549,754 $35,272,517 $36,119,297 $28,879,074 $32,197,941 $34,851,005 $45,715,329 Public Safety 91,432,506 95,147,888 101,613,767 100,403,365 97,136,602 102,664,551 102,732,652 107,380,286 104,919,259 114,932,219 Public Works 43,289,943 43,342,529 41,004,033 42,747,958 46,011,618 46,403,830 43,363,799 44,410,102 41,558,084 48,617,290 Community Development 4,316,710 7,698,693 7,685,733 5,845,968 4,909,158 4,618,101 4,771,875 5,003,045 3,290,142 4,589,328 Cultural and Recreational 16,618,663 14,952,438 14,647,978 14,583,687 12,129,962 10,808,931 10,492,020 11,021,226 10,996,526 14,280,985 Housing and Redevelopment 19,209,243 18,014,624 15,524,912 19,768,765 2,816,094 1,984,908 2,751,290 2,051,898 7,449,423 3,442,239 Interest and Fiscal Charges 22,961,838 30,251,260 23,108,139 19,633,486 15,411,831 19,439,248 17,219,905 18,902,831 16,387,887 16,127,479 Total Governmental Activities Expenses 216,574,497 228,451,881 220,712,258 235,532,983 213,687,782 222,038,866 210,210,615 220,967,329 219,452,326 247,704,869 Business-Type Activities: Richmond Housing Authority 23,335,623 27,709,496 27,246,056 30,989,229 28,992,229 29,771,151 28,049,474 26,385,133 26,241,916 30,978,813 Port of Richmond 4,739,269 8,611,216 7,033,016 7,868,918 9,337,252 9,530,693 9,923,282 11,132,997 10,102,104 10,257,553 Richmond Marina 235,571 232,855 343,734 1,681,461 266,918 253,190 235,054 237,129 230,621 327,442 Municipal Sewer 14,290,536 13,611,098 14,193,822 14,655,752 16,964,175 16,298,623 15,965,608 16,446,626 17,720,735 21,696,370 Storm Sewer 4,466,645 2,527,838 2,670,397 2,744,775 2,815,541 3,210,678 3,282,406 2,465,929 2,320,723 1,661,808 Cable TV 898,370 991,506 961,059 1,037,142 990,802 890,846 948,426 2,114,436 1,028,185 1,697,155 Total Business-Type Activities Expenses 47,966,014 53,684,009 52,448,084 58,977,277 59,366,917 59,955,181 58,404,250 58,782,250 57,644,284 66,619,141 Total Primary Government Expenses $264,540,511 $282,135,890 $273,160,342 $294,510,260 $273,054,699 $281,994,047 $268,614,865 $279,749,579 $277,096,610 $314,324,010

Program Revenues Governmental Activities: Charges for Services: General Government $7,813,724 $6,612,893 $8,155,496 $8,496,532 $11,596,612 $16,917,113 $11,107,654 $12,468,525 $15,543,381 $16,838,782 Public Safety 3,931,893 5,674,457 5,177,825 5,075,588 5,400,290 6,217,749 10,466,292 7,271,472 8,932,212 8,147,458 Public Works 1,669,681 1,656,353 3,741,601 2,596,312 3,090,211 4,160,804 3,609,577 3,936,242 4,796,586 6,529,172 Community Development 170,872 504,726 135,215 361,706 234,836 405,404 1,385,689 1,069,767 615,388 1,748,222 Cultural and Recreational 594,205 1,294,976 1,151,374 1,118,777 516,499 584,475 475,091 1,128,267 1,252,192 1,545,399 Housing and Redevelopment 7,000 222,459 42,040 1,878,958 Operating Grants and Contributions 8,402,636 12,286,127 17,934,341 11,259,829 9,703,416 8,434,018 9,231,039 20,994,534 16,083,370 20,556,989 Capital Grants and Contributions 6,997,666 9,685,942 20,016,974 17,238,057 11,360,153 34,530,908 21,097,186 17,534,992 14,008,833 10,471,376 Total Government Activities Program Revenues 29,587,677 37,937,933 56,312,826 46,146,801 41,902,017 71,250,471 57,372,528 64,445,839 61,231,962 67,716,356 Business-Type Activities: Charges for Services: Richmond Housing Authority 3,096,831 2,100,519 1,916,352 2,354,197 2,619,669 2,638,834 1,917,602 1,851,337 3,067,020 1,740,399 Port of Richmond 5,095,840 3,882,153 6,329,914 7,745,580 9,043,026 10,201,751 9,480,367 10,581,419 10,182,777 10,580,246 Richmond Marina 476,588 417,679 220,858 259,777 466,921 456,956 488,201 517,108 540,567 537,438 Municipal Sewer 14,432,849 15,991,488 17,342,276 17,565,632 17,733,454 18,569,191 19,033,406 19,757,863 20,767,925 22,447,439 Storm Sewer 1,579,698 1,593,792 1,697,475 1,800,536 1,842,001 1,869,064 1,845,648 1,966,537 1,992,758 2,068,110 Cable TV 1,084,389 1,157,502 1,099,919 1,022,100 1,320,552 1,228,864 1,376,194 1,320,486 1,339,104 1,281,952 Operating Grants and Contributions 18,683,329 21,549,967 23,332,167 22,742,102 22,323,336 21,953,401 22,112,391 21,951,328 22,636,922 26,098,804 Capital Grants and Contributions 50,027 2,429,709 2,685,479 3,775,002 10,087,538 1,673,398 2,189,724 2,155,686 969,910 1,155,536 Total Business-Type Activities Program Revenue 44,499,551 49,122,809 54,624,440 57,264,926 65,436,497 58,591,459 58,443,533 60,101,764 61,496,983 65,909,924 Total Primary Government Program Revenues $74,087,228 $87,060,742 $110,937,266 $103,411,727 $107,338,514 $129,841,930 $115,816,061 $124,547,603 $122,728,945 $133,626,280

Net (Expense)/Revenue Governmental Activities ($186,986,820) ($190,513,948) ($164,399,432) ($189,386,182) ($171,785,765) ($150,788,395) ($152,838,087) ($156,521,490) ($158,220,364) ($179,988,513) Business-Type Activities (3,466,463) (4,561,200) 2,176,356 (1,712,351) 6,069,580 (1,363,722) 39,283 1,319,514 3,852,699 (709,217) Total Primary Government Net Expense ($190,453,283) ($195,075,148) ($162,223,076) ($191,098,533) ($165,716,185) ($152,152,117) ($152,798,804) ($155,201,976) ($154,367,665) ($180,697,730)

General Revenues and Other Changes in Net Position Governmental Activities: Taxes: Property Taxes: Current Collections $78,279,818 $62,620,002 $61,155,694 $52,219,777 $47,207,734 $42,226,820 $45,129,392 $51,302,638 $56,588,547 59,441,796 Sales Taxes 27,922,698 25,000,182 23,025,923 27,788,339 29,865,548 29,627,711 33,155,376 40,877,125 41,620,189 44,474,973 Utility User Taxes 48,953,004 50,298,719 45,007,806 45,984,315 48,398,349 48,033,706 48,299,958 43,365,249 44,966,489 46,079,755 Documentary Transfer Taxes 2,765,842 2,957,834 3,461,473 4,818,936 6,187,096 7,452,985 6,486,347 Other Taxes 7,959,683 6,092,050 3,361,146 3,784,986 3,289,518 3,592,218 5,099,511 5,734,802 5,329,465 6,144,968 Use of Money and Property 6,851,266 (7,618,093) 8,877,982 (22,064,295) 11,331,823 (1,164,987) (4,752,198) 1,198,266 12,230,256 7,000,785 Unrestricted Intergovernmental 2,197,148 957,140 2,427,575 4,752,245 44,814 1,806,532 43,312 49,448 58,842 Miscellaneous 9,220,595 5,465,467 6,723,228 7,917,715 3,461,402 3,229,898 2,151,042 4,258,061 5,138,724 4,195,794 Gain From Sale of Capital Assets 5,000,000 174,874 268,927 262,667 64,651 39,226 Pension Stabilization Revenue 5,292,746 2,728,314 2,728,314 2,544,175 2,549,922 998,839 954,202 915,860 885,938 Developer Revenue Sharing 51,767 138,454 101,739 55,958 Transfers (692,391) 500,000 (85,629) 1,030,428 (590,394) 178,487 600,000 86,778 86,778 Special/Extraordinary Items: Swap Termination (16,321,171) Transfer of Loans to Housing Successor 1,208,259 Assets Transferred To/Liabilities Assumed By 14,968,712 Housing Successor/Successor Agency 84,426,106 (a) (5,328,244) Total Government Activities 191,036,334 146,182,235 153,323,778 211,205,591 143,188,306 130,180,552 137,110,165 153,392,617 174,413,470 175,217,523 Business-Type Activities: Taxes: Property Taxes Use of Money and Property 390,189 (2,768,103) 1,657,791 (5,331,300) 4,054,073 (185,246) (563,129) (3,076,857) 3,548,826 3,431,293 Settlement 1,922,260 Other 7,701 188,143 609,031 Special Item (14,510,000) Transfers 692,391 (500,000) 85,629 (1,030,428) 590,394 (178,487) (600,000) (86,778) (86,778) Extraordinary Items 9,023,704 1,359,929 Total Business-Type Activities 1,090,281 (1,157,700) 2,352,451 (6,361,728) 13,668,171 1,174,683 (741,616) (18,186,857) 3,462,048 3,344,515 Total Primary Government $192,126,615 $145,024,535 $155,676,229 $204,843,863 $156,856,477 $131,355,235 $136,368,549 $135,205,760 $177,875,518 $178,562,038 Change in Net Position Governmental Activities $4,049,514 ($44,331,713) ($11,075,654) $21,819,409 ($28,597,459) ($20,607,843) ($15,727,922) ($3,128,873) $16,193,106 ($4,770,990) Business-Type Activities (2,376,182) (5,718,900) 4,528,807 (8,074,079) 19,737,751 (189,039) (702,333) (16,867,343) 7,314,747 2,635,298 Total Primary Government $1,673,332 ($50,050,613) ($6,546,847) $13,745,330 ($8,859,708) ($20,796,882) ($16,430,255) ($19,996,216) $23,507,853 ($2,135,692)

(a) The Redevelopment Agency was dissolved effective January 31, 2012 and its net position transferred to a Successor Agency. (b) The City implemented the provisions of GASB Statement 63 in fiscal year 2013, which replaced the term "net assets" with the term "net position". (c) The City implemented the provisions of GASB Statement No. 68 in fiscal year 2015. Years prior to 2015 have not been restated. (d) The City implemented the provisions of GASB Statement No. 75 in fiscal year 2018. Years prior to 2018 have not been restated.

216 217 CITY OF RICHMOND Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting)

Millions

$200

$150

$100

$50

Reserved Unreserved Nonspendable Restricted Assigned Unassigned

General Fund Reserved $24,682,489 Unreserved 20,855,189 This Page Left Intentionally Blank Nonspendable $23,360,596 $28,021,103 $25,944,325 $26,366,829 $19,505,987 $18,708,682 $18,404,669 $15,697,680 $17,967,653 Assigned 1,009,480 380,999 377,181 219,646 56,786 23,934 4,460 10,013 72,506 Unassigned 14,836,337 12,077,471 11,036,847 10,238,862 7,979,055 9,949,120 10,988,266 19,709,197 17,590,764 Total General Fund $45,537,678 $39,206,413 $40,479,573 $37,358,353 $36,825,337 $27,541,828 $28,681,736 $29,397,395 $35,416,890 $35,630,923 (a)

All Other Governmental Funds Reserved $34,982,192 Unreserved, reported in: Special revenue funds 10,128,026 Debt service funds 26,219,974 Capital project funds 77,066,114 Nonspendable $19,160 $7,666,605 $174,067 $484 $550 Restricted 76,120,393 73,538,765 42,888,150 $42,117,459 $39,066,351 41,017,602 53,752,247 $56,052,014 $64,125,353 Assigned 12,925,706 8,925,705 5,147,506 1,734,260 428,766 430,083 431,867 782,617 43,906 Unassigned (13,673,750) (13,944,936) (11,929,833) (14,357,112) (15,499,990) (9,755,130) (13,824,433) (12,190,388) (8,939,781) Total all other governmental funds $148,396,306 $75,391,509 $76,186,139 $36,279,890 $29,494,607 $23,995,127 $31,693,039 $40,360,231 $44,644,243 $55,229,478 (a)

(a) The change in total fund balance for the General Fund and other governmental funds is explained in Management's Discussion and Analysis. (b) The City implemented the provisions of GASB Statement 54 in fiscal year 2010, and years prior to 2009 have not been restated to conform with the new regulations. (c) Balance was restated in fiscal year 2014. Years prior to 2013 have not been restated.

218 CITY OF RICHMOND Changes in Fund Balance of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting)

Fiscal Year Ended June 30, Fiscal Year Ended June 30, 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenues Property taxes $79,047,050 $63,858,143 $57,113,666 $51,964,005 $48,518,328 $43,559,305 $46,498,061 $52,714,540 $58,042,766 $60,963,189 Sales taxes 27,922,698 25,000,182 23,025,923 27,788,339 29,865,548 29,627,711 33,131,486 40,877,125 41,620,189 44,474,973 Utility user fees 48,953,004 40,298,719 50,007,806 50,984,315 48,398,349 48,033,706 48,299,958 43,365,249 44,966,489 46,079,755 Other taxes 7,959,683 6,092,050 7,824,181 6,550,828 6,247,352 7,053,691 9,918,447 11,628,519 12,566,579 12,413,127 Licenses, permits and fees 6,415,896 7,598,407 7,495,563 9,393,833 11,830,426 7,713,634 12,409,625 12,235,483 16,577,695 21,552,883 Developer revenue sharing 51,767 138,454 101,739 55,958 Fines, forfeitures and penalties 359,870 481,264 474,889 536,510 617,509 821,411 1,353,518 901,838 1,065,421 1,001,927 Use of money and property 5,278,605 1,849,884 1,031,746 932,393 557,936 153,958 225,529 212,787 422,324 746,525 Intergovernmental 15,753,684 21,627,513 38,605,526 36,121,561 19,995,922 17,078,035 19,228,997 14,440,543 19,913,858 20,137,593 Private grants 12,971,138 5,000,000 9,000,000 Charges for services 5,585,383 8,517,238 9,425,484 9,204,016 9,350,051 20,022,968 13,607,840 13,462,270 15,947,909 17,045,201 Pension stabilization revenue 5,292,746 2,728,314 2,728,314 2,544,175 2,549,922 998,839 954,202 915,860 885,938 Rent 312,096 766,017 960,661 793,144 681,141 708,626 809,113 768,753 839,821 852,940 Other 11,685,170 4,766,408 6,686,908 7,142,854 2,703,133 2,845,117 1,977,688 4,300,150 5,472,719 4,418,779

Total Revenues 214,617,652 183,722,593 205,482,406 204,011,931 181,315,617 178,617,001 188,414,464 208,794,255 223,321,708 238,686,892

Expenditures Current: General government 19,044,304 14,412,971 15,053,928 30,303,614 33,251,610 32,005,878 29,786,089 31,819,369 36,973,645 44,009,256 Public safety 93,507,626 95,989,053 94,269,101 87,286,248 87,573,539 91,676,955 90,219,981 94,774,545 95,479,682 96,546,035 Public works 20,513,373 20,997,847 23,144,011 25,555,928 26,065,996 26,363,885 25,806,437 25,690,663 30,327,553 35,016,495 Community development 4,334,599 7,692,545 7,655,697 5,643,542 4,709,478 4,357,885 4,586,333 4,843,687 6,374,607 8,057,638 Cultural and recreational 16,796,528 15,137,648 14,559,213 12,183,399 11,175,362 10,223,708 10,021,481 10,551,337 10,786,216 11,347,436 Housing and redevelopment 22,049,876 12,098,783 11,767,304 6,267,418 3,089,640 2,266,265 2,625,533 3,038,135 7,672,540 1,942,637 SERAF 10,118,826 2,083,288 Capital outlay 80,466,151 25,142,692 27,189,722 28,721,772 15,704,486 14,365,888 8,178,649 8,566,563 3,667,134 10,000,595 Debt service: Principal repayment 9,684,582 171,714,191 14,879,506 14,312,544 8,691,629 6,775,769 7,842,830 9,148,909 9,966,416 11,032,933 Interest and fiscal charges 14,038,265 21,418,597 14,559,340 11,393,091 7,504,922 10,989,996 13,407,604 12,503,442 11,471,169 10,785,342 Swap termination payment 28,554,000

Total Expenditures 280,435,304 394,723,153 225,161,110 221,667,556 197,766,662 199,026,229 192,474,937 229,490,650 212,718,962 228,738,367

Excess (deficiency) of revenues over (under) expenditures (65,817,652) (211,000,560) (19,678,704) (17,655,625) (16,451,045) (20,409,228) (4,060,473) (20,696,395) 10,602,746 9,948,525

Other Financing Sources (Uses) Transfers in 79,414,731 49,963,245 62,507,821 38,456,022 21,145,031 20,145,264 12,879,975 12,124,166 18,770,780 14,472,164 Transfers out (80,148,188) (43,560,606) (55,482,457) (33,437,663) (19,666,470) (20,859,344) (13,815,569) (12,091,206) (19,251,041) (14,868,906) Sale of property 5,040,000 23,300 188,489 53,618 174,874 268,927 262,667 181,022 39,226 Payment to refund bond escrow agent Issuance of long-term debt 121,076,391 14,721,130 3,214,243 2,621,558 6,165,445 11,175,436 28,390,000 Bond issuance premium 109,701 106,740 82,880 1,393,619

Total other financing sources (uses) 4,306,543 127,502,330 21,746,494 8,530,792 4,260,477 5,626,239 10,591,649 30,079,246 (299,239) (357,516)

Special and Extraordinary Items Assets transferred to/liabilities assumed by Housing Successor/Successor Agency (33,902,636) (b) Transfer of loans to housing successor 1,208,259 Interfund advance restructuring 745,119 Total Special and Extraordinary Items (33,902,636) 745,119 1,208,259

Net Change in fund balances ($61,511,109) ($83,498,230) $2,067,790 ($43,027,469) ($11,445,449) ($14,782,989) $6,531,176 $9,382,851 $10,303,507 $10,799,268

Debt service as a percentage of noncapital expenditures 11.1% 51.9% 14.5% 12.3% 8.7% 9.4% 11.4% 22.6% 10.3% 10.0%

NOTE: (a) Debt service in 2010 includes the current refunding of the 2007 Tax Allocation Bonds of $64,275,000. (b) The Redevelopment Agency was dissolved effective January 31, 2012 and its net assets transferred to a Successor Agency.

220 221 CITY OF RICHMOND ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (In Thousands)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

ASSESSED VALUE (1)

Land $4,498,812 $3,541,992 $3,427,021 $3,329,164 $3,216,147 $3,218,339 $3,781,609 $4,186,239 $4,520,312 $4,946,654

Improvements 8,995,536 8,071,718 6,721,515 7,413,276 9,268,934 7,181,567 8,187,280 8,683,770 9,216,704 9,400,903

Total Real Property 13,494,348 11,613,710 10,148,536 10,742,440 12,485,081 10,399,906 11,968,889 12,870,009 13,737,016 14,347,557

Personal Property 632,670 683,995 671,258 681,204 795,573 53,195 460,661 669,634 585,832 $589,457

TOTAL $14,127,018 $12,297,705 $10,819,794 $11,423,644 $13,280,654 $10,453,101 $12,429,550 $13,539,643 $14,322,848 $14,937,014

EXEMPTIONS(2)

Homeowners(a) $113,296 $111,793 $110,280 $107,571 $104,144 $100,680 $98,456 $96,539 $95,052 $94,266

Other(b) 364,531 432,140 473,917 495,344 519,976 527,179 587,350 641,475 688,713 760,841

TOTAL $477,827 $543,933 $584,197 $602,915 $624,120 $627,859 $685,806 $738,014 $783,765 $855,107

ASSESSED VALUE

(Net of Exemptions) $13,649,191 $11,753,772 $10,235,597 $10,820,729 $12,656,534 $9,825,242 $11,743,744 $12,801,629 $13,539,083 $14,081,907

Less: Redevelopment Tax Increments(3) 2,404,325 1,736,546 1,594,287 1,578,082 1,558,233 1,595,033 1,799,831 2,055,811 2,248,742 2,567,061

NET ASSESSED VALUE $11,244,866 $10,017,226 $8,641,310 $9,242,647 $11,098,301 $8,230,209 $9,943,913 $10,745,818 $11,290,341 $11,514,846

NET INCREASE (DECREASE) $787,429 ($1,227,640) ($1,375,916) $601,337 $1,855,654 ($2,868,092) $1,713,704 $801,905 $544,523 $224,505

% OF INCREASE (DECREASE) 7.53% -10.92% -13.74% 6.96% 20.08% -25.84% 20.82% 8.06% 5.07% 1.99%

Total Direct Tax Rate(4) 0.43216% 0.40770% 0.41395% 0.40618% 0.38653% 0.41948% 0.41930% 0.43781% 0.43675% 0.43591% This Page Left Intentionally Blank (1) Assessed value (full cash value) of taxable property represents all property within the City. For the fiscal year 1981-82 and thereafter, the assessed value is 100% of the full cash value in accordance with State legislation. The maximum tax rate is 1% of the full cash value or $1/$100 of the assessed value, excluding the tax rate for debt service.

(2) Exemptions are summarized as follows: (a) Homeowners' exemption arises from Article XIII(25) which reimburses local governments for revenues lost through the homeowners' exemption in Article XIII(3)(k). (b) Other exemptions are revenues lost to the City because of provisions of California Constitution, Article XIII(3).

(3) Tax increments are allocations made to the Redevelopment Agency under authority of California Constitution, Article XVI.

(4) California cities do not set their own direct tax rate. The state constitution establishes the rate at 1% and allocates a portion of that amount, by an annual calculation, to all the taxing entities within a tax rate area. The City of Richmond encompasses more than 92 tax rate areas. See Property Tax Rates statistics for additional information.

Source: County of Contra Costa, Office of the Auditor-Controller HdL reports

222 CITY OF RICHMOND PROPERTY TAX RATES ALL OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS

$1.2

$1.0

$0.8 Per Hundred $

$0.6

$0.4

$0.2

$0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Series7 Series3 Series1 Series4 Series5 Series9 Series6 Series2 Series8

Basic City of East Bay West Contra Total City's County Richmond Regional East Bay Contra Costa Direct & Share of General Total Fiscal Wide 1981 Pension Parks Acalanes MUD Dist. 1 Orinda Costa Community Overlapping 1% Levy Per Obligation Debt Redevelopment Direct Year Levy (1) Liability (2) BART District Union Bond Elementary Unified College Tax Rates (3) Prop 13 (4) Rate Rate (5) Rate (6)

2009 $1.00000 $0.14000 $0.00900 $0.01000 $0.02890 $0.00640 $0.02470 $0.12300 $0.00660 $1.34860 $0.28784 $0.14000 $1.15000 $0.43216 2010 1.00000 0.14000 0.00570 0.01080 0.02980 0.00650 0.02360 0.18280 0.01260 1.41180 0.28784 0.14000 1.15080 0.40770 2011 1.00000 0.14000 0.00310 0.00840 0.03110 0.00670 0.02440 0.18690 0.01330 1.41390 0.28784 0.14000 1.14840 0.41395 2012 1.00000 0.14000 0.00410 0.00710 0.03330 0.00670 0.02740 0.23220 0.01440 1.46520 0.28784 0.14000 1.14710 0.40618 2013 1.00000 0.14000 0.00430 0.00510 0.03330 0.00680 0.02730 0.21570 0.00870 1.44120 0.28784 0.14000 0.00000 0.38653 2014 1.00000 0.14000 0.00750 0.00780 0.03610 0.00660 0.02550 0.28180 0.01330 1.51860 0.28784 0.14000 0.00000 0.41948 2015 1.00000 0.14000 0.00450 0.00850 0.03500 0.00470 0.02320 0.28030 0.02520 1.52140 0.28784 0.14000 0.00000 0.41930 2016 1.00000 0.14000 0.00260 0.00670 0.00000 0.00340 0.00000 0.27810 0.02200 1.45280 0.28784 0.14000 0.00000 0.43781 2017 1.00000 0.14000 0.00800 0.00320 0.00000 0.00280 0.00000 0.26040 0.01200 1.42640 0.28784 0.14000 0.00000 0.43675 2018 1.00000 0.14000 0.00840 0.00210 0.00000 0.00110 0.00000 0.23970 0.01140 1.40270 0.28784 0.14000 0.00000 0.43591

NOTES: (1) In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. (2) Voter approved debt. (3) Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners. (4) City's Share of 1% Levy is based on the City's share of the general fund tax rate area with the largest next taxable value within the City. ERAF general fund tax shifts may not be included in tax ratio figures. (5) RDA rate is based on the largest RDA tax rate area (TRA) and includes only rate(s) from indebtedness adopted prior to 1989 per California state statute. RDA direct and overlapping rates are applied only to the incremental property values. (6) Total Direct Rate is the weighted average of all individual direct rates applied by the government preparing the statistical section information and excludes revenues derived from aircraft. Beginning in 2013/14 the Total Direct Rate no longer includes revenue generated from the former redevelopment tax rate areas. Challenges to recognized enforceable obligations are assumed to have been resolved during 2012/13. For the purposes the rates reported, residual revenue is assumed to be distributed to the City in the same proportions as general fund revenue.

Source: County of Contra Costa, Office of the Auditor-Controller

224 225 CITY OF RICHMOND CITY OF RICHMOND Principal Property Tax Payers Current Year and Nine Years Ago PROPERTY TAX LEVIES AND COLLECTIONS (In Thousands) LAST TEN FISCAL YEARS (In Thousands) 2017-2018 2008-2009 Percentage Percentage of Total City of Total City $80.0 Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Type of Business Value Rank Value Value Rank Value

Chevron USA Inc. Industrial $3,458,826,102 1 24.56% $3,806,016,395 1 27.88% $70.0 Guardian KW Hilltop LLC Residential 195,893,231 2 1.39%

LIPT Giant Road Inc. Industrial 85,200,000 3 0.61% $60.0 Richmond Essex LP Residential 77,070,899 4 0.55% 67,858,721 6 0.50% ## Kaiser Foundation Hospitals Industrial 71,371,353 5 0.51% ## ## Western B Northwest California LLC Industrial 44,676,000 6 0.32% $50.0 KM Phoenix Holdings LLC Industrial 44,525,532 7 0.32% Dicon Fiberoptics INC Industrial 43,349,741 8 0.31% $40.0 Ford Point LLC Residential 41,235,340 9 0.29%

LBG Hilltop Commercial 41,157,093 10 0.29% Thousands Lennar Emereald Marina Shores Industrial 130,136,960 2 0.95% $30.0 Richmond Parkway Associates Commercial 122,770,226 3 0.90%

Bayer healthcare Pharm INC Industrial 114,423,602 4 0.84% $20.0 DDRM Hilltop Plaza LP Commercial 88,858,116 5 0.65% Richmond Associates Commercial 63,726,624 7 0.47%

Crescent Park EAH LP Residential 48,443,500 8 0.35% $10.0 Cherokee Simeon Venture I LLC Residential 46,837,270 9 0.34% Foss Maritime Company Unsecured 45,888,847 10 0.34% $0.0 Subtotal $4,103,305,291 29.14% $4,534,960,261 33.23% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Net Assessed Valuation: 1% Tax Roll (1) Tax Collections (3) Fiscal Year 2017-2018 $14,081,907,000 Fiscal Year 2008-2009 $13,649,191,000

Source: Contra Costa County Assessor Fiscal Year Combined Tax Rolls and the SBE Non Unitary Tax Roll

Percent of Voter Total Total Tax Fiscal 1% Tax Approve Debt Tax Collections Year Roll (1) Tax Rolls (2) Collections (3) to Tax Levy

2009 $34,096 $16,172 $50,268 100% 2010 28,147 15,155 43,302 100% 2011 25,573 11,900 37,473 100% 2012 27,669 14,377 42,046 100% 2013 31,638 14,718 46,356 100% 2014 27,289 13,267 40,556 100% 2015 29,392 14,225 43,617 100% 2016 31,490 18,071 49,561 100% 2017 33,152 19,618 52,770 100% 2018 33,780 20,481 54,261 100%

Source: City of Richmond Records NOTES: (1) The maximum tax rate is 1% of the assessed value or $1/$100 of the assessed value, excluding the tax rate for debt. (2) Voter approved tax roll for debt is in addition to the 1% rate shown in note (1). (3) During fiscal year 1995, the County began providing the City 100% of its tax levy under an agreement which allows the County to keep all interest and delinquency charges collected. 226 227 CITY OF RICHMOND UTILITY USERS TAX COLLECTIONS CITY OF RICHMOND LAST TEN FISCAL YEARS UTILITY USERS TAX DIRECT RATES ON CHARGES FOR SERVICES LAST TEN FISCAL YEARS (A) $25

$20 2015 2016 2017 2018

$15 Cable TV Users 5% 5% 5% 5% Gas & Electric 10% 10% 10% 10% Millions $10 Telephone 9.50% 9.50% 9.50% 9.50% Operations (B) (B) (B) (B)

$5 UUT Settlement (C) (C) (C) (C)

$0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cable TV Users Gas & Electric Telephone Operations UUT Settlement

Fiscal Year Ended June 30 NOTES: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (A) Historical information prior to 2015 is not available. Cable TV Users $334,347 $835,226 $824,723 $810,755 $809,972 $983,465 $1,016,552 $988,547 $924,912 $1,036,854 Gas & Electric 12,326,977 8,919,561 8,336,362 9,660,557 8,943,183 8,787,715 9,003,928 9,966,642 11,433,006 11,250,415 (B) Based on the Cap Provision in the City of Richmond Municipal Code Telephone 4,558,009 5,510,933 6,539,983 5,473,445 5,688,505 5,183,418 4,807,499 4,093,128 3,668,092 3,300,001 Operations 18,733,671 20,032,999 19,306,738 20,039,558 19,956,689 20,079,108 20,471,979 21,004,080 21,209,540 22,884,443 Section 13.52.100 - Maximum Tax Payable of the Richmond Municipal Code. UUT Settlement 13,000,000 15,000,000 10,000,000 10,000,000 13,000,000 13,000,000 13,000,000 7,000,000 7,000,000 7,000,000 (C) Annual amount is per agreement signed by a Major Taxpayer and the City in 2010. Prepaid Wireless 312,852 730,939 608,042 Combined (A)

$48,953,004 $50,298,719 $45,007,806 $45,984,315 $48,398,349 $48,033,706 $48,299,958 $43,365,249 $44,966,489 $46,079,755 SOURCE: City of Richmond, Finance Department (Revenue) NOTES:

(A) Components of collections by type are not available, therefore amount represents total UUT collections for the fiscal year, and these amounts have been excluded from the graph

SOURCE: City of Richmond, Finance Department (Revenue)

228 229 CITY OF RICHMOND Ratio of Outstanding Debt by Type CITY OF RICHMOND Last Ten Fiscal Years TOP TEN UTILITY USERS TAXPAYERS (ALPHABETICAL ORDER) $500,000,000

Current Year (A) $450,000,000

$400,000,000

$350,000,000

Taxpayer Type of Business (B) $300,000,000

($ 000) ($ $250,000,000 Chevron Industrial PG&E Utility $200,000,000

Marin Clean Energy Utility $150,000,000 Comcast Cable $100,000,000 New Cingular Wireless Telecommunications Pacific Bell Telephone Co Telecommunications $50,000,000

GTE Mobilnet of California LTD Telecommunications $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 T-Mobile Telecommunications

MetroPCS California LLC Telecommunications Total Governmental Total Business Constellation new Energy Gas Governmental Activities Tax Pension Loans Fiscal Allocation Obligation Revenue and Notes Capital Year Bonds Bonds Bonds Payable Leases Total NOTES: 2009 $165,200,399 $150,493,392 $97,750,000 $10,544,185 $8,300,966 $432,288,942 2010 130,953,999 152,059,727 88,271,545 10,460,463 6,536,310 388,282,044 (A) Information for 2008 is not available. 2011 125,899,530 153,589,314 87,906,545 20,723,084 7,022,284 395,140,757 2012 (B) 155,060,554 87,526,545 635,646 (B) 8,523,072 251,745,817 (B) Revenue base information by taxpayer is confidential. 2013 (B) 156,483,676 87,121,545 1,231,880 8,269,494 253,106,595 2014 (B) 157,555,624 87,121,545 2,631,887 11,186,685 258,495,741 2015 (B) 156,491,679 87,121,545 12,970,813 9,295,123 265,879,160 SOURCE: City of Richmond, Finance Department (Revenue) 2016 (B) 155,070,539 115,218,619 2,143,560 7,944,891 280,377,609 2017 (B) 153,058,033 113,275,266 1,993,820 6,872,843 275,199,962 2018 (B) 150,485,289 111,241,920 1,844,775 8,650,840 272,222,824

Business-Type Activities

Wastewater Port Lease Loans Total Percentage Fiscal Revenue Revenue and Notes Primary of Personal Per Year Bonds Bonds Payable Total Government Income (A) Capita (A)

2009 $41,934,902 $3,203,312 $4,971,846 $50,110,060 $482,399,002 18.70% $4,643 2010 41,416,658 49,015,199 4,501,732 94,933,589 483,215,633 19.08% 4,620 2011 84,893,408 48,683,747 4,016,617 137,593,772 532,734,529 21.12% 5,043 2012 84,246,892 48,252,294 3,516,009 136,015,195 387,761,012 15.26% 3,697 2013 90,096,593 (C) 47,834,187 3,007,372 140,938,152 394,044,747 15.06% 3,733 2014 89,012,056 44,944,399 2,935,889 136,892,344 395,388,085 14.54% 3,725 2015 86,867,520 41,984,610 2,861,189 131,713,319 397,592,479 14.68% 3,737 2016 84,637,983 39,354,875 2,783,127 126,775,985 407,153,594 14.84% 3,689 2017 82,313,447 36,588,791 3,401,553 122,303,791 397,503,753 14.21% 3,556 2018 111,698,772 33,587,707 3,316,308 148,602,787 420,825,611 14.41% 3,765

Notes: Debt amounts exclude any premiums, discounts, or other amortization amounts. (A) See Demographic Statistics for personal income and population data. (B) Due to the dissolution of the Redevelopment Agency, the Tax Allocation Bonds and the Loans and Notes Payable that were related to the Redevelopment Agency were transferred to the Successor Agency as of February 1, 2012 and are no longer governmental commitments. (C) With the implementation of GASB Statement No. 65, the deferred amount on refunding previously reported as a component of the long-term debt balance is not reported as a deferred inflows of resources.

Sources: City of Richmond State of California, Department of Finance (population) U.S. Department of commerce, Bureau of the Census (income)

230 231 CITY OF RICHMOND CITY OF RICHMOND REVENUE BOND COVERAGE REVENUE BOND COVERAGE 1999, 2006, 2008, 2010A, 2010B and 2017A WASTEWATER REVENUE BONDS 1996, 1999, 2004, 2007 AND 2009 PORT TERMINAL LEASE REVENUE BONDS, NOTE LAST TEN FISCAL YEARS AND POINT POTRERO LEASE REVENUE BONDS LAST TEN FISCAL YEARS

3.00 2.00 2.75 1.90 1.80 2.50 1.70 2.25 1.60 1.50 2.00 1.40

1.75 1.30 1.20 1.50 1.10 1.00 1.25 0.90

1.00 0.80 0.70 0.75 0.60 0.50 0.50 0.40

0.25 0.30 0.20 0.00 0.10 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.00 Coverage 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Coverage

Debt Service Requirements Net Revenue Fiscal Gross Operating Available for Debt Service Requirements Year Revenue (1) Expenses (2) Debt Service Principal Interest Total Coverage Net Revenue Fiscal Gross Operating Available for 2009 $14,498,712 $8,287,431 $6,211,281 $2,403,307 $2,403,307 2.58 Year Revenue (1) Expenses (2) Debt Service Principal Interest Total Coverage 2010 16,075,782 10,362,653 5,713,129 $865,000 2,146,974 3,011,974 1.90 2011 17,399,624 9,154,788 8,244,836 905,000 4,943,042 5,848,042 1.41 2009 $5,292,289 $3,129,349 $2,162,940 $2,745,000 $292,367 $3,037,367 0.71 2012 17,697,208 8,956,411 8,740,797 975,000 4,399,406 5,374,406 1.63 2010 4,334,422 3,007,455 1,326,967 3,270,000 1,671,265 4,941,265 0.27 2013 17,840,042 9,447,236 8,392,806 1,005,000 4,613,635 5,618,635 1.49 2011 6,357,466 2,035,968 4,321,498 405,000 3,728,541 4,133,541 1.05 2014 18,569,191 9,734,277 8,834,914 1,055,000 4,560,528 5,615,528 1.57 2012 7,822,496 2,931,799 4,890,697 505,000 3,381,546 3,886,546 1.26 2015 19,098,835 9,524,878 9,573,957 2,115,000 4,536,302 6,651,302 1.44 2013 9,138,193 2,964,060 6,174,133 525,000 3,348,154 3,873,154 1.59 2016 19,843,677 9,954,037 9,889,640 2,200,000 4,393,375 6,593,375 1.50 2014 10,280,894 3,189,866 7,091,028 2,955,000 3,255,221 6,210,221 1.14 2017 20,880,739 10,831,250 10,049,489 2,295,000 4,344,233 6,639,233 1.51 2015 9,481,315 3,380,916 6,100,399 3,025,000 3,077,165 6,102,165 1.00 2018 23,752,946 11,885,819 11,867,127 2,400,000 5,599,008 7,999,008 1.48 2016 10,081,074 4,533,796 5,547,278 2,723,455 2,869,343 5,592,798 0.99 2017 10,194,121 3,522,216 6,671,905 2,830,000 2,641,797 5,471,797 1.22 2018 10,633,233 4,450,592 6,182,641 3,065,000 2,393,977 5,458,977 1.13

Notes: (1) Includes all Municipal Sewer Operating Revenues and Non-operating Interest Revenue excluding Derivative Notes: (1) Includes all Port of Richmond Operating Revenues and Non-operating Interest Revenue excluding Derivative Investment Interest. Investment Interest. (2) Includes all Municipal Sewer Operating Expenses less Depreciation and Pension Expense related to (2) Includes all Port of Richmond Operating Expenses, less Depreciation and Pension Expense related to GASB Statement 68. GASB Statement 68.

Source: City of Richmond Annual Financial Statements Source: City of Richmond Annual Financial Statements 232 233 CITY OF RICHMOND CITY OF RICHMOND GENERAL BONDED DEBT BONDED DEBT PLEDGED REVENUE COVERAGE PENSION OBLIGATION BONDS (1) TAX ALLOCATION BONDS AND REFUNDING BONDS (1) LAST TEN FISCAL YEARS LAST TEN FISCAL YEARS

$90,000,000

$80,000,000

$1,500

$1,400 $70,000,000 $1,300

$1,200 $60,000,000 $1,100

$1,000 $50,000,000 $900

$800 $40,000,000 $700

$600 $30,000,000 $500

$400 $20,000,000 $300

$200 $10,000,000 $100

$0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Series1

Tax Increment Revenue Debt Service Payment

Ratio of General Net General Restricted Net Bonded Debt to Net Bonded Debt Service Requirements Fiscal Bonds Cash and Bonds Net Assessed Assessed Value Debt per Fiscal Tax Year Outstanding Investments (2) Outstanding Value of Property of Property Capita Year Revenue Principal Interest Total Coverage

2009 $150,493,392 $9,916,755 $140,576,637 $11,244,866,000 1.25% 1,353 2009 $28,012,195 $6,450,000 $9,589,715 $16,039,715 1.75 2010 152,059,727 7,841,951 144,217,776 10,017,226,000 1.44% 1,379 2010 18,559,284 69,170,000 (2) 7,220,349 76,390,349 0.24 2011 153,589,314 8,314,362 145,274,952 8,641,310,346 1.68% 1,375 2011 17,743,295 6,225,000 5,905,703 12,130,703 1.46 2012 155,060,554 8,617,952 146,442,602 9,242,647,000 1.58% 1,396 2012 15,619,530 (3) (4) 6,285,000 5,972,529 12,257,529 1.27 2013 156,483,676 7,054,942 149,428,734 11,098,301,000 1.35% 1,416 2013 16,320,481 (4) 6,565,000 5,754,825 12,319,825 1.32 2014 157,555,624 8,089,647 149,465,977 8,230,209,000 1.82% 1,408 2014 16,776,169 (4) 5,030,000 5,461,989 10,491,989 1.60 2015 156,491,679 8,148,121 148,343,558 9,943,913,000 1.49% 1,394 2015 17,206,306 (4) 2,930,000 4,500,409 7,430,409 2.32 2016 155,070,539 8,936,523 146,134,016 10,745,818,000 1.36% 1,324 2016 19,953,198 (4) 6,180,000 4,445,674 10,625,674 1.88 2017 153,058,033 9,777,863 143,280,170 11,290,341,000 1.27% 1,282 2017 14,156,746 (4) 6,395,000 4,653,678 11,048,678 1.28 2018 150,485,289 9,075,692 141,409,597 11,514,846,000 1.23% 1,265 2018 12,255,069 (4) 7,575,000 4,746,564 12,321,564 0.99

Note: (1) Includes the 1999 Bonds issued in fiscal year 2000, and the 2005 Bonds issued in fiscal year 2006. (2) Restricted cash is being held with the City's fiscal agent, Union Bank, and is restricted for the payment of the bonds. Note: (1) Includes the 1991, 1998, 2000, 2003, 2004, 2007, 2010 and 2014 Bonds. (2) Includes current refunding of the 2007 Bonds of $64,275,000. (3) The Redevelopment Agency was dissolved effective January 31, 2012, and its liabilities were assumed Source: City of Richmond Annual Financial Statements by a Successor Agency. Amounts reported here include tax revenue and debt service of both the former Redevelopment Agency and the Successor Agency. (4) Beginning in fiscal year 2012, tax increment reported in this table is the amount calculated by the County Auditor-Controller. Under the provisions of the laws dissolving the Redevelopment Agency, the Successor Agency only receives the funds necessary to fulfill its approved obligations.

Source: City of Richmond Annual Financial Statements

234 235 CITY OF RICHMOND CITY OF RICHMOND COMPUTATION OF DIRECT AND OVERLAPPING DEBT JUNE 30, 2018 COMPUTATION OF LEGAL BONDED DEBT MARGIN JUNE 30, 2018 2017-2018 Assessed Valuation: $14,081,907,000

ASSESSED VALUATION: Total Debt City's Share of Debt OVERLAPPING TAX AND ASSESSMENT DEBT: June 30, 2018 % Applicable (1) June 30, 2018 Secured property assessed value, net of Bay Area Rapid Transit District $837,820,000 2.038% $17,074,772 Contra Costa Community College District 403,600,000 7.374% 29,761,464 exempt real property $14,081,907,000 West Contra Costa Unified School District 1,149,663,353 47.344% 544,296,618 West Contra Costa Healthcare District Parcel Tax Obligations 54,635,000 44.219% 24,159,051 East Bay Regional Park District 187,800,000 3.186% 5,983,308 City of Richmond Community Facilities District No. 1998-1 2,535,000 100% 2,535,000 BONDED DEBT LIMIT (3.75% OF ASSESSED VALUE) (a) $528,071,513 City of Richmond 1915 Act Bonds 8,965,000 100% 8,965,000 California Statewide Community Development Authority 1915 Act Bonds 1,692,414 100% 1,692,414 AMOUNT OF DEBT SUBJECT TO LIMIT: TOTAL NET OVERLAPPING TAX AND ASSESSMENT DEBT 634,467,627

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Total Bonded Debt $0 Contra Costa County General Fund Obligations $291,777,297 7.348% $21,439,796 Contra Costa County Pension Obligation Bonds 155,880,000 7.348% 11,454,062 Alameda-Contra Costa Transit District Certificates of Participation 13,795,000 6.110% 842,875 Less Tax Allocation Bonds and Sales Tax Revenue Contra Costa Community College District Certificates of Participation 330,000 7.374% 24,334 Bonds, Certificate of Participation not subject to limit 0 West Contra Costa Unified School District Certificates of Participation 10,145,000 47.344% 4,803,049 City of Richmond General Fund Obligations 143,725,000 100% 143,725,000 Amount of debt subject to limit 0 City of Richmond Pension Obligations Bonds 81,519,953 100% 81,519,953 TOTAL DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT 263,809,069 Less: Contra Costa County general fund obligations supported by revenue funds 8,449,424 LEGAL BONDED DEBT MARGIN $528,071,513 City of Richmond obligations supported by port revenues 33,750,000 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $221,609,645

OVERLAPPING TAX INCREMENT DEBT (Successor Agency) $73,063,530 100% $73,063,530

TOTAL GROSS DIRECT DEBT $225,244,953 Total net debt TOTAL NET DIRECT DEBT $191,494,953 Total Net Debt Legal applicable to the limit TOTAL GROSS OVERLAPPING DEBT $746,095,273 Fiscal Debt Applicable to Debt as a percentage TOTAL NET OVERLAPPING DEBT $737,645,849 Year Limit Limit Margin of debt limit

GROSS COMBINED TOTAL DEBT $971,340,226 (2) 2009 $511,844,663 $0 $511,844,663 0.00% NET COMBINED TOTAL DEBT $929,140,802 2010 440,766,450 0 440,766,450 0.00% 2011 383,834,888 0 383,834,888 0.00% (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated 2012 405,777,338 0 405,777,338 0.00% by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital 2013 474,620,025 0 474,620,025 0.00% lease obligations. 2014 368,446,575 0 368,446,575 0.00% 2015 440,390,400 0 440,390,400 0.00% Ratios to 2017-18 Assessed Valuation: Total Net Overlapping Tax and Assessment Debt 4.51% 2016 480,061,088 0 480,061,088 0.00% 2017 507,715,613 0 507,715,613 0.00% Ratios to Adjusted Assessed Valuation: 2018 528,071,513 0 528,071,513 0.00% Gross Combined Direct Debt ($225,244,953) 1.60% Net Combined Direct Debt ($191,494,953) 1.36% Combined Total Debt 6.90% Net Combined Total Debt 6.60% NOTE: (a) California Government Code, Section 43605 sets the debt limit at 15%. The Ratios to Successor Agency Redevelopment Incremental Valuation ($2,567,060,724): Total Overlapping Tax Increment Debt 2.85% Code section was enacted prior to the change in basing assessed value to full market value when it was previously 25% of market value. Thus, the limit shown as 3.75% is one-fourth the limit to account for the adjustment of showing assessed valuation ______at full cash value. Source: HdL Coren & Cone, Contra Costa County Assessor and Auditor, City of Richmond Finance Department

236 237 CITY OF RICHMOND CITY OF RICHMOND DEMOGRAPHIC AND ECONOMIC STATISTICS Principal Employers LAST TEN CALENDAR YEARS Current Year and Nine Years Ago

11.00% $3.0 2017-2018 2008-2009 10.00% $2.5 Percentage Percentage Number of of Total City Number of of Total City 9.00% $2.0 Employer Employees Rank Employment Employees Rank Employment 8.00% $1.5 Billions

7.00% $1.0 Chevron Refinery 3,510 1 3.6% 2,461 1 2.5% 6.00% $0.5 West Contra Costa Unified School District 1,658 2 1.7% 5.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Social Security Administration 1,259 3 1.3%

Personal Income Blue Apron, Inc. 1,200 4 1.2% City Population % of County Population U.S. Postal Service 1,047 5 1.1%

City of Richmond 888 6 0.9% $50,000 20.00% 17.50% $40,000 Contra Costa County 844 7 0.9% 15.00% $30,000 12.50% Kaiser Foundation Hospitals 805 8 0.8% 10.00% $20,000 7.50% Costco Wholesale #482 431 9 0.4% 278 4 0.3% 5.00% $10,000 2.50% Sunpower Corporation 291 10 0.3% $0 0.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 The Permanente Medical Group 786 2 0.8%

Wal-Mart Store 3455 350 3 0.4% Per Capita Personal Income Unemployment Rate California Autism Foundation, Inc. 250 5 0.3%

Macy's Hilltop 242 6 0.2%

The Home Depot #643 209 7 0.2%

Total Per Capita Contra Costa City Veriflo Division 185 8 0.2% Calendar City Personal Personal Unemployment County Population Year Population Income Income Rate (%) Population % of County Sealy Mattress Co. 184 9 0.2%

2008 103,895 $2,579,939,000 $24,832 10.2% 1,060,435 9.80% TPMG Regional Laboratory 176 10 0.2% 2009 104,602 2,532,776,000 24,213 16.6% 1,073,055 9.75% 2010 105,630 2,522,550,000 23,881 17.9% 1,049,025 10.07% Subtotal 11,933 12.1% 5,121 5.3% 2011 104,887 2,540,888,000 24,225 16.7% 1,065,117 9.85% 2012 105,562 2,615,932,000 24,781 11.6% 1,079,597 9.78% Total City Day Population 98,760 97,391 2013 106,138 2,718,619,000 25,614 10.1% 1,094,205 9.70% 2014 106,388 2,707,894,000 24,453 7.1% 1,089,291 9.77% Source: City of Richmond Community Development Department 2015 110,378 2,743,560,000 24,856 5.8% 1,126,745 9.80% 2016 111,785 2,797,360,000 25,024 5.1% 1,135,127 9.85% 2017 111,785 2,920,370,000 26,124 4.6% 1,147,439 9.74%

Source: HdL, Coren & Cone

238 239 CITY OF RICHMOND CITY OF RICHMOND Full-Time Equivalent City Government Employees by Function Operating Indicators by Function/Program Last Ten Fiscal Years Last Ten Fiscal Years

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Function/Program 1,000 Public safety: Fire: 900 Fire calls for service 9,861 11,723 12,237 12,770 12,868 12,988 13,670 14,497 14,372 14,375 Primary fire inspections conducted 6,201 5,752 5,055 1,071 2,716 3,000 1,569 1,134 1,160 5,378 800 Number of firefighters 98 109 83 85 93 85 94 91 90 91 700 Number of firefighters and civilians per thousand population 1.1 1.0 1.2 0.8 0.8 0.8 0.8 0.8 0.8 0.1

600 Police: 500 Number of police officers per thousand population 1.7 1.9 1.7 1.8 1.8 1.7 1.8 1.7 1.6 1.6 Number of sworn officers 176 200 188 191 195 186 196 185 182 178 400 FTE's

300 Water Daily average consumption in gallons per family 250 250 250 250 250 250 250 250 250 250 200 Source: City of Richmond 100

(100) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

General government Public safety Public works Community development Cultural and recreational

Housing and redevelopment Richmond Housing Authority Port of Richmond Richmond Marina Municipal Sewer

Storm Sewer Cable TV Convention Center

Adopted for Fiscal Year Ended June 30 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Function General government 107.2 113.2 100.2 101.7 102.9 104.4 105.2 99.8 105.4 116.5 Public safety 406.0 407.0 394.0 386.0 388.0 398.0 390.0 375.5 349.0 341.0 Public works 149.0 146.0 123.0 116.0 113.0 116.0 109.0 112.0 144.0 143.0 Community development 80.0 80.0 72.0 71.0 66.0 64.0 56.0 59.5 41.0 40.0 Cultural and recreational 124.4 91.2 72.2 73.8 73.2 76.8 66.0 59.0 57.0 59.1 Housing and redevelopment 40.0 34.0 19.0 19.6 13.0 12.0 10.0 5.9 3.8 3.8 Richmond Housing Authority and RHA Properties 33.0 33.0 32.0 32.0 25.0 29.0 25.0 23.0 19.0 19.0 Port of Richmond 7.0 7.0 6.0 6.0 6.0 6.0 6.0 4.0 4.0 4.0 Richmond Marina (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) Municipal Sewer (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) Storm Sewer (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) Cable TV (1) (3) (3) (3) (3) (3) (3) (3) (3) (3) Convention Center (2) (3) (3) (3) (3) (3) (3) (3) (3) (3) Total 946.6 911.4 818.4 806.1 787.1 806.2 767.2 738.7 723.2 726.4

Source: City of Richmond Budget Notes: (1) These services are provided by outside contractors. (2) Convention Center closed during renovation and staff moved under cultural and recreational. (3) Staff that perform these functions are included under General Government and Cultural and Recreational.

240 241 CITY OF RICHMOND Capital Asset Statistics by Function/Program Last Ten Fiscal Years

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Function/Program Public safety: Fire stations 77 7777777 7 Police stations 66 4444444 4 Library (#) of Locations 33 3333333 3

Public works Miles of streets 280 280 280 280 280 280 280 280 280 280 Street lights 7,000 7,000 7,000 7,000 7,000 6,543 8,343 8,543 9,000 9,000

Urban Forest (trees) (a) 40,200 40,757 41,293 41,562 26,000 21,609 22,009 35,620 35,782 36,231

Culture and recreation: Community services: City parks 55 55 55 55 55 55 55 55 55 55 City parks acreage 336.6 336.6 336.6 336.6 336.6 336.6 336.6 336.6 336.6 336.6 Open Space & Public Landscapes acreage 510.0 510.0 510.0 510.0 510.0 510.0 510.0 510.0 510.0 510.0 Lawn bowling 11 1111111 1 Recreation centers 88 8888888 8 Auditorium/Theater 11 1111111 1 Gymnasiums 33 3333333 3 Senior centers 22 2222222 2 Headstart centers/day cares 66 6666666 6 Putting green 11 1111111 1 Basketball courts 28 28 28 28 28 28 28 28 28 28 Swimming pools 1 1 2 2 2 2222 2 Tennis courts 20 20 20 20 20 20 20 20 20 20 Baseball/softball diamonds 26 26 26 26 26 26 26 26 26 26 Soccer/football fields 17 17 17 17 17 17 17 17 17 17 Cricket fields 22 2222222 2

Water Fire hydrants 3,153 3,153 3,153 3,153 3,153 3,153 3,153 3,153 3,153 3,153

Wastewater Miles of sanitary sewers 183 183 183 183 183 183 183 183 183 183 Miles of storm sewers 310 310 310 310 310 310 310 310 310 310 This Page Left Intentionally Blank Land Area (square miles) 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 Miles of waterfront 32 32 32 32 32 32 32 32 32 32

Source: City of Richmond

(a) Trees managed by the City for 2013 to present. Data Prior to 2013 includes trees managed by other entities, such as East Bay Regional Park District, National Parks and Privately owned.

242

APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

The following is a brief summary of certain provisions of the Indenture. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Indenture. Reference is directed to the Indenture for the complete text thereof. Copies of the Indenture are available from the City Clerk of the City of Richmond.

Definitions

“Accreted Value” means, with respect to any Capital Appreciation Indebtedness, the principal amount thereof plus the interest accrued thereon, compounded at the interest rate thereon on each date as specified therein.

“Annual Debt Service” means, for any Bond Year, the aggregate amount of principal and interest on all Bonds and Parity Debt becoming due and payable during such Bond Year calculated using the principles and assumptions set forth under the definition of Debt Service.

“Applicable Credit Provider” means the Credit Provider providing a Credit Facility for a particular Series of Bonds.

“Average Annual Debt Service” means, as of any date of calculation, an amount equal to (i) the Annual Debt Service remaining to be paid on all Bonds and Parity Debt on the date of calculation, divided by (ii) the number of Bond Years (or partial years) commencing with the Bond Year of the date of calculation to and including the Bond Year which includes the first date on which none of such Bonds or Parity Debt remains Outstanding. Such interest and principal will be calculated on the assumption that no Bonds or Parity Debt at the date of calculation will cease to be Outstanding except by reason of the payment when due of each principal installment (including mandatory sinking account payments).

“Balloon Indebtedness” means any Series of Bonds or Parity Debt 50% or more of the principal of which matures or is payable on the same date and which is not required by the instrument pursuant to which such Bonds or Parity Debt were issued to be amortized by payment or redemption prior to such date.

“Bond Obligation” means, as of any given date of calculation, (1) with respect to any Current Interest Indebtedness, the principal amount thereof, and (2) with respect to any Capital Appreciation Indebtedness, the Accreted Value thereof.

“Bond Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period thereafter selected and designated as the official fiscal year period of the City which designation will be provided to the Trustee in a Certificate of the City.

“Bonds” means the City of Richmond, California Wastewater Revenue Bonds authorized by, and at any time Outstanding pursuant to, the Indenture, including Credit Provider Bonds.

“Business Day” means any day other than (1) a Saturday, Sunday, or a day on which banking institutions in the State or the State of New York or California are authorized or obligated by law or executive order to be closed, and (2) for purposes of payments and other actions relating to Bonds secured by a letter of credit or supported by a liquidity facility, a day upon which commercial banks in the city in

C-1 which is located the office of the issuing bank at which demands for payment under such letter of credit or liquidity facility are to be presented are authorized or obligated by law or executive order to be closed.

“Capital Appreciation Indebtedness” means Bonds and Parity Debt on which interest is compounded and paid less frequently than annually.

“Certificate,” “Statement,” “Request,” “Requisition” or “Order” of the City mean, respectively, a written certificate, statement, request, requisition or order signed in the name of the City by its City Manager, Finance Director or any other person authorized by the City Manager or Finance Director to execute such instruments. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument. If and to the extent required by the Indenture, certificates and opinions will include the statements provided for in the Indenture.

“Charter” means the City Charter of the City, as amended from time to time.

“City” means the City of Richmond, California.

“City Council” means the City Council of the City or any other legislative body of the City thereafter provided for pursuant to law.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.

“Continuing Disclosure Agreement” means any Continuing Disclosure Agreement executed and delivered by the City relating to any Series of Bonds.

“Corporate Trust Office” or “corporate trust office” means the corporate trust office of the Trustee at 400 South Hope Street, Suite 500, Los Angeles, California 90071, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City and related to the authorization, execution, sale and delivery of the Bonds, including but not limited to advertising and printing costs, costs of preparation and reproduction of documents, filing and recording fees, travel expenses and costs relating to rating agency meetings and other meetings concerning the Bonds, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, financial advisor fees and expenses, rating agency fees, fees and charges for preparation, execution, transportation and safekeeping of the Bonds, surety, insurance and credit enhancement costs, and any other cost, charge or fee in connection with the delivery of the Bonds.

“Credit Agreement” means, with respect to a Credit Facility, the agreement among the City, and the Applicable Credit Provider, as originally executed or as it may from time to time be replaced, supplemented or amended in accordance with the provisions of the Indenture, providing for the issuance of the Credit Facility and the reimbursement of the Credit Provider for drawings thereunder, and any subsequent agreement pursuant to which a substitute Credit Facility is provided, together with any related pledge agreement, security agreement or other security document.

C-2 “Credit Facility” means any letter of credit, guarantee, standby purchase agreement, bond insurance or other support arrangement or security or any combination of the foregoing, if any, provided by the Credit Provider pursuant to any Supplemental Indenture.

“Credit Provider” means the issuer or other provider of a Credit Facility with respect any series of the Bonds as provided for in any Supplemental Indenture, and the respective successors and assigns of the business thereof and any surviving, resulting or transferee entity with or into which it may be consolidated or merged or to which it may transfer all or substantially all of its business.

“Credit Provider Bonds” means any Bonds purchased pursuant to a Credit Facility as provided in any Supplemental Indenture for so long as such Bonds are held by or for the account of, or are pledged to, the Applicable Credit Provider in accordance with such Supplemental Indenture.

“Current Interest Indebtedness” means Bonds and Parity Debt on which interest is paid at least annually.

“Debt Service” means, during any period of computation, the amount of principal and interest becoming due and payable on all Bonds and Parity Debt for such period, determined by totaling the following amounts:

(a) The Bond Obligation of all Outstanding Serial Bonds and all Parity Debt coming due and payable by their terms in such period;

(b) The minimum Bond Obligation of all Outstanding Term Bonds and all Parity Debt scheduled to be redeemed by operation of mandatory sinking fund deposits in such period, together with any premium thereon; and

(c) The interest which would be due during such period on the aggregate principal amount of Bonds and Parity Debt which would be Outstanding in such period if the Bonds or Parity Debt are retired as scheduled, but deducting and excluding from such aggregate amount the amount of Bonds or Parity Debt no longer Outstanding;

provided, that for the purposes of determining compliance with the requirements for issuance of additional Bonds or Parity Debt, the rate covenant contained in the Indenture and the amount of the Reserve Fund Requirement, the following provisions apply:

(i) Generally. Except as otherwise provided in subparagraph (ii) below with respect to Variable Interest Rate Indebtedness, in subparagraph (iii) below with respect to Bonds or Parity Debt with respect to which a Public Finance Contract is in force, and in subparagraph (iv) below with respect to Balloon Indebtedness, interest on any Bond or Parity Debt will be calculated based on the actual amount of interest that is payable under such Bond or Parity Debt;

(ii) Interest on Variable Interest Rate Indebtedness. Interest deemed to be payable on any Variable Interest Rate Indebtedness for periods when the actual interest rate can be determined will be the actual Variable Interest Rates and for periods when the actual interest rate cannot yet be determined will be calculated on the assumption that the interest rate on such Variable Interest Rate Indebtedness would be equal to (a) the average rate that accrued on such Variable Interest Rate Indebtedness over the preceding twelve (12) months, or (b) if the Variable Interest Rate Indebtedness has not been accruing interest at a variable rate for twelve (12) months, the average interest rate that

C-3 accrued on any outstanding Variable Interest Rate Indebtedness for which interest is computed on substantially the same basis during the preceding twelve (12) month period, or (c) if no such comparable Variable Interest Rate Indebtedness was outstanding during the twelve (12) months preceding the date of calculation, then (x) if the interest on such Variable Interest Rate Indebtedness is excluded from gross income for purposes of Federal income taxation, 90% of the average rate of interest for The Bond Buyer Revenue Bond Index over the preceding twelve (12) months, or, if that index is no longer published, an interest rate equal to 80% of the yield for outstanding United States Treasury Bonds having an equivalent maturity as the Variable Rate Interest Indebtedness, or if there are no such Treasury Bonds having equivalent maturities, 80% of the lowest prevailing prime rate of any of the five largest commercial banks in the United States, ranked by assets, and (y) if interest on such Variable Interest Rate Indebtedness is not excluded from gross income for purposes of Federal income taxation, 110% of the yield for outstanding United States Treasury Bonds having an equivalent maturity as the Variable Rate Interest Indebtedness, or if there are no such United States Treasury Bonds having equivalent maturities, 110% of the lowest prevailing prime rate of any of the five largest commercial banks in the United States, ranked by assets;

(iii) Interest on Bonds or Parity Debt With Respect to Which a Public Finance Contract Is in Force. Interest deemed to be payable on any Bonds or Parity Debt with respect to which a Public Finance Contract is in force will be based on the net economic effect on the City expected to be produced by the terms of such Bonds or Parity Debt and such Public Finance Contract, including but not limited to the effects that (a) such Bonds or Parity Debt would, but for such Public Finance Contract, be treated as an obligation bearing interest at a Variable Interest Rate instead will be treated as an obligation bearing interest at a fixed interest rate, and (b) such Bonds or Parity Debt would, but for such Public Finance Contract, be treated as an obligation bearing interest at a fixed interest rate instead will be treated as an obligation bearing interest at a Variable Interest Rate; and accordingly, the amount of interest deemed to be payable on any Bonds or Parity Debt with respect to which a Public Finance Contract is in force will be an amount equal to the amount of interest that would be payable at the rate or rates stated in such Bonds or Parity Debt plus the Public Finance Contract Payments minus the Public Finance Contract Receipts, and for the purpose of calculating as nearly as practicable the Public Finance Contract Receipts and the Public Finance Contract Payments under such Bonds or Parity Debt, the following assumptions will be made:

(1) City Obligated to Pay Net Variable Payments. If a Public Finance Contract has been entered into by the City with respect to Bonds or Parity Debt resulting in the payment of a net variable interest rate with respect to such Bonds or Parity Debt and Public Finance Contract by the City, the interest rate on such Bonds or Parity Debt for future periods when the actual interest rate cannot yet be determined will be assumed (but only during the period the Public Finance Contract is in effect) to be equal to the sum of (x) the fixed rate or rates stated in such Bonds or Parity Debt, minus (y) the fixed rate paid by the Qualified Counterparty to the City, plus (z) the lesser of (A) the interest rate cap, if any, provided by a Qualified Counterparty with respect to such Public Finance Contract (but only during the period that such interest rate cap is in effect) and (B) the applicable Variable Interest Rate calculated in accordance with subparagraph (ii) above; and

C-4 (2) City Obligated to Pay Net Fixed Payments. If a Public Finance Contract has been entered into by the City with respect to Bonds or Parity Debt resulting in the payment of a net fixed interest rate with respect to such Bonds or Parity Debt and Public Finance Contract by the City, the interest on such Bonds or Parity Debt will be included in the calculation of Debt Service (but only during the period the Public Finance Contract is in effect) by including for each Bond Year or twelve (12) calendar month period an amount equal to the amount of interest payable at the fixed interest rate pursuant to such Public Finance Contract;

(iv) Interest on Balloon Indebtedness. If any outstanding Bonds or Parity Debt constitute Balloon Indebtedness (and such Bonds or Parity Debt do not constitute Short-Term Indebtedness excluded from the calculation of the Debt Service pursuant to clause (v), below) or if Bonds or Parity Debt proposed to be incurred would constitute Balloon Indebtedness (and such Bonds or Parity Debt would not constitute Short-Term Indebtedness excluded from the calculation of the Debt Service pursuant to clause (v), below), then such Balloon Indebtedness will be treated as if the principal amount of such Bonds or Parity Debt were amortized from the date originally incurred in substantially equal installments of principal and interest over a term of thirty (30) years; provided, however, that the full principal amount of such Balloon Indebtedness will be included in making such calculation if such principal amount is due within ninety (90) days of the date such calculation is being made); and, if interest accrues under such Balloon Indebtedness at other than a fixed rate, the interest rate used for such computation will be (x) if the interest on such Bonds or Parity Debt is excluded from gross income for purposes of Federal income taxation, 90% of the average rate of interest for The Bond Buyer Revenue Bond Index over the preceding twelve (12) months, or if that index is no longer published, an interest rate equal to 80% of the yield for outstanding United States Treasury Bonds having an equivalent maturity as the Bonds or Parity Debt on the date incurred, or if there are no such United States Treasury Bonds having equivalent maturities, 80% of the lowest prevailing prime rate of any of the five largest commercial banks in the United States, ranked by assets, and (y) if the interest on such Bonds or Parity Debt is not excluded from gross income for purposes of Federal income taxation, the rate equal to 110% of the yield for outstanding United States Treasury Bonds having an equivalent maturity as the Balloon Indebtedness, or, if there are no such United States Treasury Bonds having equivalent maturities, 110% of the lowest prevailing prime rate of any of the five largest commercial banks in the United States, ranked by assets;

(v) Exclusion of Certain Short-Term Indebtedness. If any outstanding Bonds or Parity Debt constitute Short-Term Indebtedness or if the Bonds or Parity Debt proposed to be issued would constitute Short-Term Indebtedness, and such Short-Term Indebtedness are or will be payable only out of Net Revenues of the Fiscal Year in which such Short-Term Indebtedness are incurred, then such Short-Term Indebtedness will be disregarded and not included in calculating Debt Service;

(vi) Credit for Accrued and Capitalized Interest. If amounts constituting accrued interest or capitalized interest have been deposited with a trustee for such Bonds or Parity Debt, then the interest payable from such amounts with respect to such Bonds or Parity Debt will be disregarded and not included in calculating Debt Service.

“Debt Service Coverage Ratio” means, for any period, the ratio determined by dividing Net Revenues by Debt Service for such period.

C-5 “Defeasance Securities” means:

(1) Cash (insured at all times by the Federal Deposit Insurance Corporation),

(2) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including:

• U.S. treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration • General Services Administration • Guaranteed Title XI financing • Government National Mortgage Association (GNMA) • State and Local Government Series

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). Any reinvestment of any security used for defeasance must be reinvested in Defeasance Securities.

“Enterprise” means any and all facilities of the City for the disposal or reuse of wastewater, including sewage treatment plants, intercepting and collecting sewers, outfall sewers, force mains, pumping stations, ejector stations, pipes, valves, machinery and all other appurtenances necessary, useful or convenient for the collection, treatment, purification or disposal of sewage, and any necessary lands, rights or way and other real or personal property useful in connection therewith.

“Event of Default” means any of the events specified as such in the Indenture as described under the caption “Events of Default” below.

“Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period thereafter selected and designated as the official fiscal year period of the City which designation will be provided to the Trustee in a Certificate of the City.

“Fitch” means FitchRatings, its successors and their assigns, and, if it will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, “Fitch” will be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, at the written direction of the City.

“Generally Accepted Accounting Principles Applicable to Governments” means generally accepted accounting principles applicable to governments as promulgated by the Governmental Accounting Standards Board or its successor.

“Gross Revenues” means all gross income and revenue received by the City from the ownership and operation of the Enterprise, including (a) all fees and charges received by the City for the services of the Enterprise, (b) all other income and revenue howsoever derived by the City from the ownership and operation of the Enterprise or arising from the Enterprise, (c) all sums deposited, or required under the Indenture to be deposited, in the Wastewater Fund, including Subsidy Receipts, and (d) amounts transferred to the Wastewater Fund from the Rate Stabilization Fund pursuant to the Indenture; but

C-6 excluding (x) the proceeds of any ad valorem property taxes received by the City to pay debt service on any outstanding obligations of the City, and (y) any contributed capital (other than connection fees)

“Indenture” means the Master Indenture, as originally executed and as it may from time to time be supplemented or amended by any Supplemental Indenture delivered pursuant to the provisions thereof.

“Independent Accountant” means any accountant or firm of such accountants appointed and paid by the City, and who, or each of whom-

(a) is in fact independent and not under domination of the City;

(b) does not have any substantial interest, direct or indirect, with the City; and

(c) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make annual or other audits of the books of or reports to the City.

“Information Services” means national information services that disseminate securities redemption notices; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds, or no such services as the City may designate in a written request delivered to the Trustee.

“Interest Fund” means the fund by that name established with the Trustee pursuant to the Indenture.

“Interest Payment Date” means, with respect to the Series 2019 Bonds, each August 1 and February 1, commencing February 1, 2020.

“Investment Securities” means the following:

(A)(1) Cash (insured at all times by the Federal Deposit Insurance Corporation),

(B)(1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:

C-7 -Export-Import Bank -Rural Economic Community Development Administration -U.S. Maritime Administration -Small Business Administration -U.S. Department of Housing & Urban Development (PHAs) -Federal Housing Administration -Federal Financing Bank

(2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

-Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). -Obligations of the Resolution Funding Corporation (REFCORP) -Senior debt obligations of the Federal Home Loan Bank System -Senior debt obligations of other Government Sponsored Agencies approved by the Applicable Credit Provider

(3) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);

(4) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody’s and “A-1+” by S&P and which matures not more than 270 calendar days after the date of purchase;

(5) Investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P;

(6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

(A) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or

(B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(7) Municipal Obligations rated “Aaa/AAA” or general obligations of States with a rating of “A2/A” or higher by both Moody’s and S&P.

C-8 (8) Investment Agreements approved in writing by the Applicable Credit Provider (supported by appropriate opinions of counsel); and

(9) other forms of investments (including repurchase agreements) approved in writing by the Applicable Credit Provider.

a) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers will include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch, Citigroup Global Markets Inc., Bear Stearns, or Lehman Brothers.

b) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus. accrued interest thereon; and

c) As to any investment not specified above: the value thereof established by prior agreement among the Issuer, the Trustee, and the Applicable Credit Provider.

“Master Indenture” means the Indenture, dated as of October 1, 2006, by and between the City and the Trustee.

“Maximum Annual Debt Service” means the greatest amount of principal and interest becoming due and payable on all Bonds and Parity Debt in the Bond Year in which the calculation is made or any subsequent Bond Year using the principles and assumptions set forth under the definition of Debt Service.

“Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, then the term “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency selected by the City.

“Net Revenues” means, with respect to any period, the amount of Gross Revenues received during such period less the amount of Operating Expenses becoming payable during such period.

“Operating Expenses” means for the then current fiscal year, the reasonable and necessary costs of maintaining and operating the Enterprise, calculated on the basis of generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, but excluding (a) depreciation, replacement and obsolescence charges or reserves therefor or other bookkeeping entries of a similar nature, and (b) Debt Service.

“Opinion of Bond Counsel” means a written opinion of a law firm of national standing in the field of public finance selected by the City.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (1) Bonds theretofore cancelled by the Trustee or surrendered to

C-9 the Trustee for cancellation; (2) Bonds with respect to which all liability of the City will have been discharged in accordance with the Indenture, including Bonds (or portions of Bonds) for which money has been set aside for the payment of the interest, principal or Redemption Price due as provided in the Indenture; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds will have been authenticated and delivered by the Trustee pursuant to the Indenture.

“Owner” or “Bondholder” or “Bondowner,” whenever used in the Indenture with respect to a Bond, means the person in whose name such Bond is registered.

“Parity Debt” means any indebtedness, installment sale obligation, lease obligation or other obligation of the City for borrowed money or certain designated payments under a Parity Public Finance Contract having an equal lien and charge upon the Net Revenues, therefore payable on a parity with the Bonds (whether or not any Bonds are Outstanding).

“Parity Public Finance Contract” means a Public Finance Contract which is designated as Parity Debt.

“Parity Reserve Fund” means the fund by that name established with the Trustee pursuant to the Indenture.

“Person” means an individual, a corporation, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof.

“Principal Fund” means the fund by that name established with the Trustee pursuant to the Indenture.

“Public Finance Contract” means a written agreement for the purpose of managing or reducing the City’s exposure to fluctuations in interest rates or for any other interest rate, investment, asset or liability managing purposes, entered into either on a current or forward basis by the City and a Qualified Counterparty as authorized under any applicable laws of the State in connection with, or incidental to, the issuance of Bonds or Parity Debt, that provides for an exchange of payments based on interest rates, ceilings or floors on such payments, options on such payments or any combination thereof, or any similar device.

“Public Finance Contract Insurance Policy” means a surety bond or insurance policy issued by an insurance company for the account of the City, as principal, and for the benefit of such insurance company, as beneficiary, relating to a Public Finance Contract.

“Public Finance Contract Payments” means the regularly scheduled amounts periodically required to be paid by the City (excluding termination payments) to all Qualified Counterparties under all Parity Public Finance Contracts.

“Public Finance Contract Receipts” means the amounts periodically required to be paid by all Qualified Counterparties to the City under all Parity Public Finance Contracts.

“Qualified Counterparty” means a party (other than the City or a party related to the City) who is the other party to a Public Finance Contract and (1) (A) who is rated at least “A2” from Moody’s and “A” from Standard & Poor’s, or (B) whose senior debt obligations are rated at least “A2” from Moody’s and “A” from Standard & Poor’s, or guaranteed by an entity so rated, or (C) whose obligations under the Public Finance Contract are guaranteed for the entire term of the Public Finance Contract by a bond insurer or other institution which has been assigned a credit rating at least equal to “A2” from Moody’s

C-10 and “A” from Standard & Poor’s, or (D) whose obligations under the Public Finance Contract are collateralized in such a manner as to obtain a rating at least equal to the ratings assigned by each of the Rating Agencies to the Bonds or Parity Debt to which such Public Finance Contract relates, and (2) who is otherwise qualified to act as the other party to a Public Finance Contract under all applicable laws of the State.

“Rate Stabilization Fund” means the fund by that name established and maintained by the City pursuant to the Indenture.

“Rating Agency” means S&P Global Ratings (“S&P”), or in the event that S&P no longer maintains a rating on the Series 2019 Bonds, any other nationally recognized rating agency then maintaining a rating on such Series 2019 Bonds.

“Rating Category” means (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier and (ii) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier.

“Rebate Fund” means the fund by that name established with the Trustee pursuant to the Indenture.

“Record Date” means, with respect to the Series 2019 Bonds, the fifteenth day of the month preceding an Interest Payment Date.

“Redemption Fund” means the fund by that name established with the Trustee pursuant to the Indenture.

“Redemption Price” means, with respect to any Bond (or portion thereof) the Bond Obligation of such Bond (or portion thereof) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and the Indenture.

“Reserve Fund Requirement” means, as of any date of determination and excluding any Parity Debt for which no reserve fund is to be maintained or for which a separate reserve fund is to be maintained, the lesser of (a) the Maximum Annual Debt Service on all Bonds and Parity Debt to be secured by the Parity Reserve Fund, or (b) one hundred twenty-five percent (125%) of the Average Annual Debt Service on all Bonds and Parity Debt to be secured by the Parity Reserve Fund; provided that in no event will the deposit to the Parity Reserve Fund with respect to any Series of Bonds or Parity Debt to be secured by the Parity Reserve Fund be an amount greater than ten percent (10%) of the initial offering price to the public of each Series of Bonds and any Parity Debt to be secured by the Parity Reserve Fund as determined under the Code, all as computed and determined by the City and specified in writing to the Trustee.

“Serial Bonds” means Bonds, maturing in specified years, for which no mandatory sinking fund payments are provided.

“Series” whenever used in the Indenture with respect to Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Bonds as provided in the Indenture.

C-11 “Series 2008 Public Finance Contract” means the ISDA Master Agreement, together with the schedule and confirmation thereto, dated November 19, 2009, by and between the City and the Series 2008A Counterparty, as amended by that certain amendment, dated May 30, 2017, by and between the City and the Series 2008A Counterparty.

“Series 2008A Bonds” means the City’s outstanding Variable Rate Wastewater Revenue Refunding Bonds, Series 2008A.

“Series 2008A Credit Facility” means that certain Irrevocable Transferable Letter of Credit delivered by the Series 2008A Credit Provider in connection with the Series 2008A Bonds.

“Series 2008A Credit Facility Reimbursement Fund” means the fund by that name established pursuant the terms of the Indenture described under the caption “Establishment and Application of the Series 2008A Credit Facility Reimbursement Fund”.

“Series 2008A Credit Provider” means Barclays Bank PLC.

“Series 2008A Counterparty” means Royal Bank of Canada.

“Series 2019 Bonds” means, collectively, the Series 2019A Bonds and the Series 2019B Bonds.

“Series 2019A Bonds” means the City of Richmond, California Wastewater Revenue Bonds, Series 2019A Bonds, as described in the Seventh Supplemental Indenture.

“Series 2019B Bonds” means the City of Richmond, California Wastewater Revenue Refunding Bonds, Series 2019B Bonds, as described in the Seventh Supplemental Indenture.

“Series 2019 Continuing Disclosure Agreement” means that certain Continuing Disclosure Agreement entered into by the City, the Trustee and Willdan Financial Services, as dissemination agent, on the date of issuance and delivery of the Series 2019 Bonds, as originally executed and as it may be amended or supplemented from time to time in accordance with the terms thereof.

“Series 2019 Costs of Issuance Fund” means the fund by that name established pursuant to the Seventh Supplemental Indenture.

“Series 2019 Project Fund” means the fund by that name established pursuant to the Seventh Supplemental Indenture.

“Short-Term Indebtedness” means Bonds or Parity Debt having an original maturity of less than or equal to one year and which are not renewable at the option of the City for a term greater than one year beyond the date of original incurrence.

“Standard & Poor’s” means Standard & Poor’s, a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, then the term “Standard & Poor’s” will be deemed to refer to any other nationally recognized securities rating agency selected by the City.

“State” means the State of California

C-12 “Seventh Supplemental Indenture” means the Seventh Supplemental Wastewater Revenue Bond Indenture, dated as of June 1, 2019, by and between the City and the Trustee.

“Supplemental Indenture” means any indenture thereafter duly executed and delivered, supplementing, modifying or amending the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

“Tax Certificate” means the Tax Certificate delivered by the City at the time of issuance and delivery of any Series of Bonds, as the same may be amended or supplemented in accordance with its terms.

“Term Bonds” means Bonds payable at or before their specified maturity date or dates from mandatory sinking fund payments established for that purpose and calculated to retire such Bonds on or before their specified maturity date or dates.

“Termination Payment” means the Termination Payment associated with the termination of the Series 2008 Public Finance Contract.

“Termination Fund” means the fund by that name established pursuant the terms of the Indenture described under the caption “Establishment and Application of the Termination Fund”.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., acting as trustee under the Indenture, or its successor, as Trustee, as provided in the Indenture.

“Variable Interest Rate” means any variable interest rate or rates to be paid under any Bonds or Parity Debt, the method of computing which variable interest rate will be as specified in the Supplemental Indenture providing for the issuance of the applicable Bonds or the instrument providing for the issuance of the Parity Debt, which Supplemental Indenture or other instrument will also specify either (i) the payment period or periods or time or manner of determining such period or periods or time for which each value of such variable interest rate will remain in effect, and (ii) the time or times based upon which any change in such variable interest rate will become effective, and which variable interest rate may, without limitation, be based on the interest rate on certain bonds or may be based on interest rate, currency, commodity or other indices.

“Variable Interest Rate Indebtedness” means, for any period of time, any Bonds or Parity Debt that bear a Variable Interest Rate during such period, except that no Bonds or Parity Debt will be treated as a Variable Interest Rate Indebtedness if the net economic effect of a Public Finance Contract with respect to any particular Bonds or Parity Debt is to produce obligations that bear interest at a fixed interest rate, and any Bonds or Parity Debt with respect to which a Public Finance Contract is in force will be treated as a Variable Interest Rate Indebtedness if the net economic effect of the Public Finance Contract is to produce obligations that bear interest at a Variable Interest Rate.

“Wastewater Fund” means the existing fund by that name established and held by the City with respect to the Enterprise.

Issuance of Bonds and Parity Debt

Issuance of Bonds. The City may by Supplemental Indenture establish one or more Series of Bonds payable from Net Revenues and secured by the pledge made under the Indenture equally and ratably with Bonds previously issued, and the City may issue, and the Trustee may authenticate and deliver to the purchasers thereof, Bonds of any Series so established, in such principal amount as will be

C-13 determined by the City, but only, with respect to each Series of Bonds, upon compliance by the City with the provisions of the Indenture described under the caption “Issuance of Bonds and Parity Debt– Proceedings for Issuance of Additional Series of Bonds” (except any Series of Bonds delivered under a Supplemental Indenture of even date therewith may be issued upon compliance by the City with the requirements of provision (c) of the Indenture described under the caption “Issuance of Bonds and Parity Debt–Proceedings for Issuance of Additional Series of Bonds” and without further condition) and any additional requirements set forth in said Supplemental Indenture and subject to the following specific conditions, which are thereby made conditions precedent to the issuance of any such additional Series of Bonds:

(a) no Event of Default will have occurred and then be continuing;

(b) the aggregate principal amount of Bonds issued thereunder will not exceed any limitation imposed by law or otherwise;

(c) there will be deposited in the Parity Reserve Fund an amount of money so as to increase the amount on deposit therein to the Reserve Fund Requirement; and

(d) As demonstrated in a Certificate of the City delivered to the Trustee, either (i) the Debt Service Coverage Ratio for the most recent Fiscal Year for which audited financial statements for the Enterprise are available (based on the Debt Service payable during the Bond Year which commenced in such Fiscal Year), calculated as of the date of sale of such additional Series of Bonds and including the Bonds and Parity Debt then Outstanding and such additional Series of Bonds, will not be less than 1.25:1.0; provided that in calculating the Debt Service Coverage Ratio:

or (ii):

(1) the Debt Service Coverage Ratio for the most recent Fiscal Year for which audited financial statements are available (based on the Debt Service payable during the Bond Year which commenced in such Fiscal Year), including the Bonds and Parity Debt then Outstanding but not such additional Series of Bonds, was at least equal to 1.25:1.0; and

(2) the Debt Service Coverage Ratio for each of the three (3) full Fiscal Years (based on the Debt Service payable during the Bond Year which commenced in each such Fiscal Year) beginning with the first full Fiscal Year in which such additional Series of Bonds are issued (or, if later, the first full Fiscal

C-14 Year in which less than ten percent (10%) of the interest coming due on such additional Series of Bonds is to be paid from the proceeds of such additional Series of Bonds) is projected (based on approved rates, fees and charges) to be at least equal to 1.25:1.0.

Proceedings for Issuance of Additional Series of Bonds. Whenever the City will determine to issue a Series of Bonds pursuant to the provisions of the Indenture described under the caption “Issuance of Bonds and Parity Debt–Issuance of Bonds,” the City will authorize the execution of a Supplemental Indenture specifying the principal amount, and prescribing the form or forms of Bonds of such additional Series and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining the same), redemption provisions and place or places of payment of principal, Accreted Value or Redemption Price, if any, of and interest on such Bonds, and any other provisions respecting the Bonds of such Series not inconsistent with the terms of the Indenture.

Before such additional Series of Bonds will be issued and delivered, the City will file the following documents with the Trustee (upon which documents the Trustee may conclusively rely in determining whether the conditions precedent to the issuance of such Series of Bonds have been satisfied):

(a) an executed copy of the Supplemental Indenture authorizing such Series;

(b) a Certificate of the City stating that no Event of Default has occurred and is then continuing;

(c) an Opinion of Bond Counsel to the effect that the execution of the Supplemental Indenture has been duly authorized by the City in accordance with the Indenture; that such Series, when duly executed by the City and authenticated and delivered by the Trustee, will be valid and binding limited obligations of the City, and that upon the delivery of such Series the aggregate principal amount of Bonds then Outstanding will not exceed the amount permitted by law or otherwise; and

(d) the Certificate of the City required by provision (d) of the Indenture described under the caption “Issuance of Bonds and Parity Debt–Issuance of Bonds.”

Issuance of Refunding Bonds. Notwithstanding any provisions in the Indenture, there will be no limitation on the ability of the City to issue any Bonds at any time to refund any outstanding Bonds or Parity Debt; provided, however, that the Maximum Annual Debt Service with respect to any such refunding Bonds will not exceed 1.10 times the Maximum Annual Debt Service with respect to the Bonds or Parity Debt being refunded.

Limitations on the Issuance of Obligations. The City will not, so long as any of the Bonds are Outstanding, issue any obligations or securities, howsoever denominated, payable in whole or in part from Net Revenues, except the following:

(a) Bonds of any Series authorized pursuant to the Indenture as described under the captions “Issuance of Bonds and Parity Debt-Issuance of Bonds” and “Issuance of Bonds and Parity Debt-Proceedings for Issuance of Additional Series of Bonds” above;

(b) refunding Bonds authorized pursuant to the Indenture as described under “Issuance of Refunding Bonds” above.

C-15 (c) Parity Debt payable on a parity with the Bonds and which will have, when issued, an equal lien and charge upon the Net Revenues, provided that the following conditions to the issuance of such Parity Debt are satisfied:

(1) such Parity Debt has been duly and legally authorized for any lawful purpose;

(2) no Event of Default will have occurred and then be continuing, as evidenced in a Certificate of the City filed with the Trustee;

(3) unless such Parity Debt is for the refunding purposes, the City will have obtained and placed on file with the Trustee a Certificate of the City that (on the basis of calculations as of the date of delivery of such Parity Debt) the requirements of provision (d) of the Indenture as described under the caption “Issuance of Bonds and Parity Debt– Issuance of Bonds” with respect to additional Bonds have been met with respect to such Parity Debt;

(4) the City will have filed with the Trustee an Opinion of Bond Counsel to the effect that such Parity Debt has been duly authorized in accordance with law and constitutes a valid and binding obligation of the City payable from Net Revenues on a parity with the Bonds; and

(5) the Trustee will be designated as paying agent or trustee for such Parity Debt and the City will deliver to the Trustee a transcript of the proceedings providing for the issuance of such Parity Debt (but the Trustee will not be responsible for the validity or sufficiency of such proceedings or such Parity Debt); or

(d) Obligations which are junior and subordinate to the payment of the principal, Accreted Value, premium, interest and reserve fund requirements for the Bonds and all Parity Debt and which subordinated obligations are payable as to principal, Accreted Value, premium, interest and reserve fund requirements, if any, only out of Net Revenues, after the prior payment of all amounts then required to be paid under the Indenture from Net Revenues, for principal, Accreted Value, premium, interest and reserve fund requirements for the Bonds and all Parity Debt, as the same become due and payable and at the times and in the manner as required in the Indenture.

Net Revenues

Application of Interest Fund. All amounts in the Interest Fund will be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it will become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture). In addition if so directed by the City, the Trustee may deposit into the Interest Fund, Public Finance Contract Receipts of the City and may pay from the Interest Fund, Public Finance Contract Payments on behalf of the City.

Application of Principal Fund. (A) All amounts in the Principal Fund will be used and withdrawn by the Trustee solely for the purposes of paying the Bond Obligation of the Bonds when due and payable, except that all amounts in the Sinking Accounts will be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Bonds, as provided in the Indenture.

C-16 (B) The Trustee will establish and maintain within the Principal Fund a separate sinking account for the Term Bonds of each Series and maturity. On or before the Business Day prior to any date upon which a mandatory sinking fund payment is due, the Trustee will transfer the amount of such mandatory sinking fund payment (being the principal thereof, in the case of Current Interest Bonds and the Accreted Value, in the case of Capital Appreciation Bonds from the Principal Fund to the applicable Sinking Account. With respect to each Sinking Account, on each mandatory sinking fund payment date established for such Sinking Account, the Trustee will apply the mandatory sinking fund payment required on that date to the redemption of Term Bonds of such Series and maturity for which such Sinking Account was established, in the manner provided in the Supplemental Indenture pursuant to which such Series of Bonds was created; provided that, at any time prior to giving such notice of such redemption, the Trustee will, upon receipt of a Request of the City, apply moneys in such Sinking Account to the purchase of Term Bonds of such Series and maturity at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as is directed by the City, except that the purchase price (excluding accrued interest, in the case of Current Interest Bonds) will not exceed the principal amount or Accreted Value thereof. If the Trustee has purchased Term Bonds of such Series and maturity with moneys in such Sinking Account, or purchased or redeemed Term Bonds of such Series and maturity at any time from the Redemption Fund and allocable to said mandatory sinking fund payment, or if the City has purchased or otherwise acquired Term Bonds and deposited such Term Bonds with the Trustee, such Term Bonds so purchased or deposited or redeemed by the Trustee or the City will be applied, to the extent of the full principal amount thereof, to reduce said mandatory sinking fund payment. All Term Bonds so purchased or deposited as described in the Indenture will be cancelled and destroyed by the Trustee. Any amounts remaining in a Sinking Account when all of the Term Bonds for which such account was established are no longer Outstanding will be withdrawn by the Trustee and transferred to the City to be deposited in the Wastewater Fund. All Term Bonds so purchased will be allocated first to the next succeeding mandatory sinking fund payment for such Series and maturity of Term Bonds, then as a credit against such future mandatory sinking fund payment for such Series and maturity of Term Bonds as may be specified in a Request of the City. All Term Bonds redeemed from the Redemption Fund will be credited to such future mandatory sinking fund payment for such Series and maturity of Term Bonds as may be specified in a Request of the City.

Application of Redemption Fund. The Trustee will establish, maintain and hold in trust a special fund designated as the “Redemption Fund” when required. All moneys deposited by the City with the Trustee for the purpose of redeeming Bonds of any Series pursuant to optional redemption or special mandatory redemption provisions applicable to such Series of Bonds will, unless otherwise directed by the City, be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of redeeming Bonds of such Series, in the manner, at the times and upon the terms and conditions specified in the Supplemental Indenture pursuant to which such Series of Bonds was created; provided that, at any time prior to giving notice of such redemption, the Trustee will, upon receipt of a Request of the City, apply such amounts to the purchase of Bonds of such Series at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding, in the case of Current Interest Bonds, accrued interest, which is payable from the Interest Account) as is directed by the City, except that the purchase price (exclusive of such accrued interest) may not exceed the Redemption Price then applicable to such Bonds. All Term Bonds purchased or redeemed from the Redemption Fund will be allocated to mandatory sinking fund payments applicable to such Series and maturity of Term Bonds as may be specified in a Request of the City.

Parity Reserve Fund. (A) The Trustee will establish and maintain and hold in trust so long as Bonds or Parity Debt to be secured thereby remain outstanding, a special fund designated as the “Parity Reserve Fund.” Amounts on deposit in the Parity Reserve Fund are pledged to the payment of the Bonds and any Parity Debt to be secured by the Parity Reserve Fund and will be applied only for such purposes

C-17 as permitted in the Indenture. The Trustee will deposit in the Parity Reserve Fund, upon the direction of the City, the Reserve Fund Requirement and such other amounts transferred to the Trustee by the City pursuant to the Indenture. No deposit need be made in the Parity Reserve Fund so long as there will be on deposit therein a sum equal to at least the amount to be on deposit therein as described in this paragraph. Whenever the amount on deposit in the Parity Reserve Fund is less than the Reserve Fund Requirement, notice thereof will be provided by the City to the insurer of the Bonds, if any, and such amount will be increased by the City to the Reserve Fund Requirement as described in this paragraph not later than twelve months thereafter. Moneys on deposit in the Parity Reserve Fund (including all amounts that may be obtained from letters of credit and surety bonds and insurance policies, as provided below, on deposit in the Parity Reserve Fund) will be transferred by the Trustee to the Principal Fund and Interest Fund to pay principal of and interest on the Bonds on any interest payment date in the event amounts on deposit therein are insufficient for such purposes. The Trustee will also, from such amounts on deposit in the Parity Reserve Fund, transfer or cause to be transferred to any applicable debt service fund for any Parity Debt to be secured by the Parity Reserve Fund, without preference or priority between transfers made pursuant to this sentence and the preceding sentence, and in the event of any insufficiency of such moneys ratably without discrimination or preference, that sum or sums, if any, equal to the amount required to be deposited therein pursuant to the documents under which any such Parity Debt to be secured by the Parity Reserve Fund is issued or incurred. Amounts on deposit in the Parity Reserve Fund in excess of the Reserve Fund Requirement will, at the written Request of the City, be withdrawn from the Parity Reserve Fund and transferred to the City.

(B) The City may provide for all or any part of the Reserve Fund Requirement by delivering to the Trustee an irrevocable letter of credit issued by a financial institution having unsecured debt obligations rated in one of the two highest Rating Categories of Moody’s and Standard & Poor’s, securing an amount, together with moneys, Investment Securities or surety bonds or insurance policies (as described in the succeeding paragraph under this caption “Net Revenues–Parity Reserve Fund” on deposit in the Parity Reserve Fund, equal to the Reserve Fund Requirement. Such letter of credit will have an original term of no less than three (3) years or, if less, the final maturity of the Bonds and such letter of credit will provide by its terms that it may be drawn upon as provided in the Indenture. At least one year prior to the stated expiration of such letter of credit, the City will either (i) deliver a replacement letter of credit, (ii) deliver an extension of the letter of credit for at least an additional year or, if less, the maturity of the Bonds or (iii) deliver to the Trustee a surety bond or an insurance policy satisfying the requirements described in the succeeding paragraph under this caption “Net Revenues–Parity Reserve Fund”. Upon delivery of such replacement letter of credit, extended letter of credit, or surety bond or insurance policy, the Trustee will deliver the then effective letter of credit to or upon the order of the City. If the City fails to deposit a replacement letter of credit, extended letter of credit, surety bond or insurance policy with the Trustee, the City will immediately commence to make monthly deposits with the Trustee so that an amount equal to the Reserve Fund Requirement will be on deposit in the Parity Reserve Fund no later than the stated expiration date of the letter of credit. If an amount equal to the Reserve Fund Requirement, calculated as of the date following the expiration of the letter of credit, is not on deposit in the Parity Reserve Fund one week prior to the stated expiration date of the letter of credit (excluding from such determination the letter of credit), the Trustee will draw on the letter of credit to fund the amount of any such deficiency in the Parity Reserve Fund.

(C) The City may also provide for all or any part of the Parity Reserve Fund by delivering to the Trustee a surety bond or an insurance policy securing an amount, together with moneys, Investment Securities or letters of credit on deposit in the Parity Reserve Fund, equal to the Reserve Fund Requirement. Such surety bond or insurance policy will be issued by an insurance company whose unsecured debt obligations (or obligations secured by such insurance company’s insurance policies) are rated in one of the two highest Rating Categories of Moody’s and Standard & Poor’s. Such surety bond or insurance policy will have a term of no less than the final maturity of the Bonds. In the event that such

C-18 surety bond or insurance policy for any reason lapses or expires, the City will immediately implement the actions described in clause (i) or (iii) of the immediately preceding paragraph under this caption “Net Revenues–Parity Reserve Fund” above or make the required deposits to the Parity Reserve Fund. Repayment of any draw under any such surety bond or insurance policy, and any expenses and accrued interest related to such draw (collectively the “Policy Costs”) will commence in the first month following each such draw, and will be paid at the time specified in the first paragraph under this caption “Net Revenues–Parity Reserve Fund” above in an amount not less than one-twelfth (1/12th) of the aggregate of the Policy Costs related to such draw. If and to the extent that cash has also been deposited in the Parity Reserve Fund, all such cash will be used (including investments purchased with such cash, which will be liquidated and the proceeds thereof applied as required under the Indenture) prior to any drawing under surety bond or insurance policy, and repayment of any Policy Costs will be made prior to any replenishment of any such cash amounts. If the City fails to repay any Policy Costs in accordance with the Indenture, the insurance company issuing such surety bond or insurance policy will be entitled to exercise any and all remedies available at law or under the Indenture other than (i) an acceleration of the interest on or principal of the Bonds as provided in the Indenture or (ii) any other remedy that would adversely affect Bondholders. The Trustee will ascertain the necessity for a claim upon any surety bond or insurance policy provided pursuant to the provisions of the Indenture described under this caption “Net Revenues–Parity Reserve Fund” and provide notice to the insurance company issuing such bond or policy in accordance with the terms and conditions of such bond or insurance policy not less than two (2) Business Days prior to any interest payment date upon which such a claim should be paid.

(D) In the event of any deficiency in the Principal Fund or Interest Fund for the payment of principal and interest payments for the Bonds pursuant to clause (A) above, the Trustee will, after first applying all cash and Investment Securities held in the Parity Reserve Fund to pay the Bond Obligation of, any mandatory sinking fund payments with respect to, and interest on, the Bonds when due, on a pro rata basis with respect to the portion of the Parity Reserve Fund held in the form of letters of credit and amounts held in the form of surety bonds and insurance policies (calculated by reference to the maximum amounts of such letters of credit and surety bonds and insurance policies), draw under each letter of credit or surety bond or insurance policy issued with respect to the Parity Reserve Fund, in a timely manner and pursuant to the terms of such letter of credit or surety bond or insurance policy to the extent necessary in order to obtain sufficient funds on or prior to the date such funds are needed to pay the Bond Obligation of, any mandatory sinking fund payments with respect to, and interest on, the Bonds when due. In the event that the Trustee has written notice from the City or any Bondholder that any payment of principal of, or interest on, a Bond has been recovered from a Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee, pursuant to and provided that the terms of the letter of credit or surety bond or insurance policy, if any, credited to the Parity Reserve Fund so provide, will so notify the issuer thereof and draw on such letter of credit or surety bond or insurance policy to the lesser of the extent required or the maximum amount of such letter of credit or surety bond or insurance policy in order to pay to such Bondholder the principal of and interest so recovered. All amounts in the Parity Reserve Fund (other than amounts that may be obtained from letters of credit and surety bonds and insurance policies on deposit in the Parity Reserve Fund) may be used and withdrawn by the Trustee, if so directed by the City, for the payment or redemption of all Bonds then Outstanding, or for the payment of the final principal and interest payments of the Bonds.

Investment of Moneys in Funds and Accounts. All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Indenture will be invested, as directed by the City, solely in Investment Securities; provided, however, that Investment Securities (other than those described in clauses (B)(8) or (B)(9) of the definition thereof) purchased with moneys held by the Trustee in the Parity Reserve Fund will have an average weighted term to maturity not greater than five years. All Investment Securities will, as directed by the City in writing or by telephone, promptly confirmed in writing, be

C-19 acquired subject to the limitations as to maturities set forth in the Indenture and such additional limitations or requirements consistent with the foregoing as may be established by Request of the City. The Trustee may conclusively rely upon any investment direction from the City as a certification to the Trustee that such investment constitutes an Investment Security. If and to the extent the Trustee does not receive investment instructions from the City with respect to the moneys in the funds and accounts held by the Trustee pursuant to the Indenture, such moneys will be invested in Investment Securities described in clause (B)(5) of the definition thereof and the Trustee will thereupon request investment instructions from the City for such moneys.

Unless otherwise provided in the Indenture or in a Supplemental Indenture, all interest, profits and other income received from the investment of moneys in any fund or account, other than the Rebate Fund, will be transferred by the Trustee to the City for deposit in the Wastewater Fund when received. All interest, profits and other income received from the investment of moneys in the Rebate Fund will be deposited in the Rebate Fund, except as otherwise provided in the Indenture. Notwithstanding anything to the contrary contained in the Indenture, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the purchase price of such Investment Security will be credited to the fund or account from which such accrued interest was paid.

The Trustee may commingle any of the funds or accounts established pursuant to the Indenture into a separate fund or funds for investment purposes only, provided that all funds or accounts held by the Trustee under the Indenture will be accounted for separately as required by the Indenture. The Trustee may act as principal or agent in the making or disposing of any investment and, with the prior written consent of the City, may impose its customary charge therefor. The Trustee may sell or present for redemption, any Investment Securities so purchased whenever it will be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Investment Security is credited, and the Trustee will not be liable or responsible for any loss resulting from such investment.

The Trustee may make any investments under the Indenture through its own bond or investment department or trust investment department, or those of its parent or any affiliate.

The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture.

Covenants

Pursuant to the Indenture, the City has covenanted as follows:

Punctual Payment. The City will punctually pay or cause to be paid the principal, Accreted Value or Redemption Price of and interest on all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, and will punctually pay or cause to be paid all mandatory sinking fund payments, but in each case only out of Net Revenues, as provided in the Indenture.

Operation of Enterprise in Efficient and Economical Manner. The City covenants and agrees to operate the Enterprise in an efficient and economical manner and to operate, maintain and preserve the Enterprise in good repair and working order.

Waiver of Laws. The City will not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time thereafter in force

C-20 that may affect the covenants and agreements contained in the Indenture or in the Bonds, and all benefit or advantage of any such law or laws is expressly waived by the City to the extent permitted by law.

Further Assurances. The City will make, execute and deliver any and all such instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in the Indenture.

Discharge of Claims. The City covenants that in order to fully preserve and protect the priority and security of the Bonds, the City will pay from the Gross Revenues and discharge all lawful claims for labor, materials and supplies furnished for or in connection with Enterprise which, if unpaid, may become a lien or charge upon the Gross Revenues or the Net Revenues prior or superior to the lien of the Bonds and impair the security of the Bonds. The City will also pay from the Gross Revenues all taxes and assessments or other governmental charges lawfully levied or assessed upon or in respect of the Enterprise or upon any part thereof or upon any of the Gross Revenues or the Net Revenues therefrom.

Against Sale, Eminent Domain. Except as provided in the Indenture or in any documents relating to Parity Debt, the City covenants that the property, facilities and improvements of the Enterprise will not be mortgaged or otherwise encumbered, sold, leased, pledged, any charge placed thereon, or disposed of as a whole or substantially as a whole unless: (a) the City will cause to be filed with the Trustee written evidence from each Rating Agency that such sale or other disposition will not cause a reduction or withdrawal of the rating then assigned to the Bonds by each such Rating Agency; (b) such sale or other disposition will be so arranged as to provide for a continuance of payments into the Wastewater Fund sufficient in amount to permit payment therefrom of the principal, Accreted Value and interest on and premiums, if any, due upon the call and redemption. thereof, of the Outstanding Bonds, and also to provide for such payments into the funds as are required under the terms of the Indenture and any Supplemental Indenture; and (c) the City will have filed with the Trustee an opinion of nationally- recognized bond counsel to the effect that such sale or other disposition will not adversely affect the exemption from federal income taxation of interest on the Bonds. The City further covenants that the Net Revenues or any other funds pledged or otherwise made available to secure payment of the principal, Accreted Value and interest on the Outstanding Bonds will not be mortgaged, encumbered, sold, leased, pledged, any charge placed thereon, or disposed of or used except as authorized by the terms of the Indenture. The City further covenants that it will not enter into any agreement which impairs the operation of the Enterprise or any part of it necessary to secure adequate Net Revenues to pay the principal, Accreted Value and interest of the Bonds or which otherwise would impair the rights of the Bond Owners with respect to the Net Revenues. If any substantial part of the Enterprise is sold the payment therefor will either be used for the acquisition and/or construction of improvements and extensions of the Enterprise or will be deposited with the Trustee and will be used to redeem the Outstanding Bonds and Parity Debt in respective amounts and on the respective dates identified by the City in writing.

The City covenants that any amounts received as awards as a result of the taking of all or any part of the Enterprise by the lawful exercise of eminent domain, if and to the extent that such right can be exercised against such property of the City, will either (a) be used for the acquisition and or construction of improvements and extension of the Enterprise, or (b) be deposited with the Trustee (in an amount required to redeem the maximum amount of Outstanding Bonds and Parity Debt) to be used to pay or redeem the Outstanding Bonds and Parity Debt in respective amounts and on the respective dates identified by the City in writing.

Insurance. The City covenants that it will at all times maintain with responsible insurers all such insurance on the Enterprise as is customarily maintained with respect to works and properties of like

C-21 character against accident to, loss of or damage to such works or properties. If any useful part of the Enterprise is damaged or destroyed, such part will be restored to use. The money collected from insurance against accident to or destruction of the physical Enterprise will either (a) be used for repairing or rebuilding the damaged or destroyed Enterprise, and to the extent not so applied will be deposited with the Trustee (in an amount required to redeem the maximum amount of Outstanding Bonds and Parity Debt) to be used to pay or redeem the Outstanding Bonds and Parity Debt in respective amounts and on the respective dates identified by the City in writing.

Any such insurance will be in the form of policies or contracts for insurance with insurers of good standing and will be payable to the City, or may in the form of self-insurance by the City. The City will establish such fund or funds or reserves as are necessary to provide for its share of any such self- insurance. The City will file or cause to be filed with the Trustee, annually within one hundred twenty (120) days after the close of each Fiscal Year, a Certificate of the City (a) stating that the City is then in compliance with the requirements of the Indenture described under this caption “Covenants–Insurance”, and (b) stating whether during the preceding Bond Year any loss has been incurred with respect to the Enterprise and, it so, the amount of insurance proceeds, including the proceeds of any self-insurance fund covering such loss and specifying the reasonable and necessary costs of repair, reconstruction or replacement thereof.

Records and Accounts. The City covenants that it will keep proper books of record and accounts of the Enterprise, separate from all other records and accounts, in which complete and correct entries will be made of all transactions relating to the Enterprise. Said books will, upon reasonable request, be subject to the inspection of the Owners of not less than ten percent (10%) of the Outstanding Bonds or their representatives authorized in writing.

The City covenants that it will cause the books and accounts of the Enterprise to be audited annually by an Independent Accountant and will make available for inspection by the Bond Owners at the Trust Office of the Trustee, upon reasonable request, a copy of the report of such Independent Accountant.

No Priority for Additional Obligations. The City covenants that no additional bonds, notes or other indebtedness will be issued or incurred having any priority in payment of principal, Accreted Value or interest out of the Net Revenues over the Bonds. Nothing in the Indenture will prohibit or impair the authority of the City to issue bonds or other obligations which are unsecured or which are secured by a lien on Net Revenues which is subordinate to the lien established under the Indenture, upon such terms and in such principal amount as the City may determine.

Tax Covenants. In the Indenture, the City covenants with the Owners of the Bonds that, notwithstanding any other provisions of the Indenture, it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under Section 103 of the Code. The City will not, directly or indirectly, use or permit the use of proceeds of the Bonds or any of the property financed or refinanced with proceeds of the Bonds, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest on the Bonds.

C-22 Events of Default and Remedies of Bondholders

Events of Default. The following events will be Events of Default under the Indenture:

(a) default in the due and punctual payment of the principal, Accreted Value or Redemption Price of any Bond when and as the same will become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise in the amounts and at the times provided therefor;

(b) default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment will become due and payable;

(c) failure by the City to observe or perform any covenant, condition, agreement or provision in the Indenture on its part to be observed or performed, other than as referred to in (a) or (b) under this caption “Events of Default and Remedies of Bondholders-Events of Default”, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, has been given to the City by the Trustee; except that, if such failure can be remedied but not within such thirty (30) day period and if the City has taken all action reasonably possible to remedy such failure within such thirty (30) day period, such failure will not become an Event of Default for so long as the City will diligently proceed to remedy the same in accordance with and subject to any directions or limitations of time established by the Trustee or any insurer of the Bonds;

(d) default by the City under any agreement governing any Parity Debt and the continuance of such default beyond the therein stated grace period, if any, with respect to such default;

(e) the filing by the City of a petition in voluntary bankruptcy for the composition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or an assignment by the City for the benefit of creditors, or the admission by the City in writing to its insolvency or inability to pay debts as they mature, or the consent by the City in writing to the appointment of a trustee or receiver for itself;

(f) the entering by a court of competent jurisdiction of an order, judgment or decree declaring the City insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of the City, or approving a petition filed against the City seeking reorganization of the City under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree will not be vacated or set aside or stayed within sixty (60) days from the date of the entry thereof; or

(g) the assumption, under the provisions of any other law for the relief or aid of debtors, by any court of competent jurisdiction of custody or control of the City or of the Net Revenues and such custody or control will not be terminated within sixty (60) days from the date of assumption of such custody or control.

Application of Net Revenues and Other Funds After Default; Acceleration. If an Event of Default will occur and be continuing, the City will immediately transfer to the Trustee all Net Revenues held by it and received thereafter and the Trustee will apply all Net Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (except as otherwise provided in the Indenture) as follows and in the following order:

C-23 (1) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and Parity Debt, including the costs and expenses of the Trustee and the Bondholders in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurred in and about the performance of its powers and duties under the Indenture;

(2) To the payment of the whole amount of Bond Obligation then due on the Bonds and Parity Debt (upon presentation of the Bonds and Parity Debt to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, with interest on such Bond Obligation at the rate or rates of interest borne by the respective Bonds and Parity Debt, to the payment to the persons entitled thereto of all installments of interest then due and the unpaid principal or Redemption Price of any Bonds and Parity Debt which will have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue Bond Obligation and Parity Debt at the rate borne by the respective Bonds and Parity Debt, and, if the amount available will not be sufficient to pay in full all the Bonds and Parity Debt due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or interest or Accreted Value (plus accrued interest) due on such date to the persons entitled thereto, without any discrimination or preference.

(3) To the payment of the payment of fees and other amounts owed to any Credit Providers relating to Credit Facilities and any providers of any Public Finance Contract Insurance Policies.

In each and every such case during the continuance of such Event of Default (and subject to any rights granted to any insurer of the Bonds with respect to the enforcement of remedies upon an Event of Default pursuant to a Supplemental Indenture), the Owners of not less than a majority in aggregate amount of Bond Obligation of the Bonds at the time Outstanding will be entitled, upon notice in writing to the City, to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and will be immediately due and payable, including accrued interest to the date of such payment, anything in the Indenture or in the Bonds contained to the contrary notwithstanding.

This provision, however, is subject to the condition that if, at any time after the principal of the Bonds will have been so declared due and payable, the City will pay to or will deposit with the Trustee a sum sufficient to pay all principal on such Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) will have been made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate will have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate amount of Bond Obligation of the Bonds at the time Outstanding, by written notice to the City and to the Trustee, may, on behalf of the Owners of all the Bonds, rescind and annul such declaration and its consequences; but no such rescission and annulment will extend to or will affect any subsequent default, or will impair or exhaust any right or power consequent thereon.

Trustee to Represent Bondholders. The Trustee is irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, will be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture and applicable provisions of any other law.

C-24 Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondholders, the Trustee in its discretion may, and upon the written request of the Owners of not less than twenty-five percent (25%) in aggregate amount of Bond Obligation of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it will deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power in the Indenture granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Indenture or any other law; and upon instituting such proceeding, the Trustee will be entitled, as a matter of right, to the appointment of a receiver of the Net Revenues, and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of the Indenture.

Bondholders’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding will have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee and upon furnishing the Trustee with indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction will not be otherwise than in accordance with law and the provisions of the Indenture, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and that the Trustee will have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders or holders of Parity Debt not parties to such direction.

Limitation on Bondholders’ Right to Sue. No Owner of any Bond will have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture or any other applicable law with respect to such Bond, unless (1) such Owner will have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Owners of not less than twenty-five percent (25%) in aggregate amount of Bond Obligation of the Bonds then Outstanding will have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (3) such Owner or said Owners will have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee will have refused or omitted to comply with such request for a period of sixty (60) days after such written request will have been received by, and said tender of indemnity will have been made to, the Trustee; and (5) the Trustee will not have received contrary directions from the Owners of a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of Bonds will have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Indenture or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.

C-25 Absolute Obligation of the City. Nothing in any other provision of the Indenture or in the Bonds contained will affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal, Accreted Value or Redemption Price of and interest on the Bonds to the respective Owners of the Bonds at their respective due dates therefor or upon call for redemption, as provided in the Indenture, but only out of the Net Revenues and other assets pledged in the Indenture therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Bondholders on account of any Event of Default will have been discontinued or abandoned for any reason or will have been determined adversely to the Trustee or the Bondholders, then in every such case the City, the Trustee and the Bondholders, subject to any determination in such proceedings, will be restored to their former positions and rights under the Indenture, severally and respectively, and all rights, remedies, powers and duties of the City, the Trustee and the Bondholders will continue as though no such proceedings had been taken.

Remedies Not Exclusive. No remedy conferred in the Indenture upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, will be cumulative and in addition to any other remedy given under the Indenture or now or thereafter existing at law or in equity or otherwise.

No Waiver of Default. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default will impair any such right or power or will be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

The Trustee

Appointment; Duties, Immunities and Liabilities of Trustee. The Bank of New York Mellon Trust Company, N.A., is appointed as Trustee under the Indenture and accepts the trust imposed upon it as Trustee under the Indenture and to perform all the functions and duties of the Trustee under the Indenture, subject to the terms and conditions set forth in the Indenture. The Trustee will, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture and no implied covenants will be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it is a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company will be eligible under the Indenture, will be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

Liability of Trustee. (A) The recitals of facts in the Indenture and in the Bonds contained will be taken as statements of the City, and the Trustee assumes no responsibility for the correctness of the same (other than the certificate of authentication of the Trustee on each Bond), and makes no representations as to the validity or sufficiency of the Indenture or of the Bonds or of any Investment Security, as to the

C-26 sufficiency of the Net Revenues, or the priority of the lien of the Indenture thereon, or as to the financial or technical feasibility of the Enterprise and will not incur any responsibility in respect of any such matter, other than in connection with the duties or obligations expressly in the Indenture or in the Bonds assigned to or imposed upon it. The Trustee will, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee will not be liable in connection with the performance of its duties under the Indenture, except for its own negligence, willful misconduct or breach of the express terms and conditions of the Indenture. The Trustee and its directors, officers, employees or agents may in good faith buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Owner of a Bond may be entitled to take, with like effect as if the Trustee was not the Trustee under the Indenture. The Trustee may in good faith hold any other form of indebtedness of the City, own, accept or negotiate any drafts, bills of exchange, acceptances or obligations of the City and make disbursements for the City and enter into any commercial or business arrangement therewith, without limitation.

(B) The Trustee will not be liable for any error of judgment made in good faith by a responsible officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee may execute any of the trusts or powers of the Indenture and perform the duties required of it under the Indenture by or through attorneys, agents, or receivers, and will be entitled to advice of counsel concerning all matters of trust and its duty under the Indenture, but the Trustee will be answerable for the negligence or misconduct of any such attorney, agent, or receiver selected by it; provided, however, that the Trustee will not be answerable for the negligence or misconduct of any attorney or certified public accountant selected by it with due care.

(C) The Trustee will not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than twenty-five percent (25%) in aggregate amount of Bond Obligation of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee under the Indenture.

(D) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Bondholders pursuant to the provisions of the Indenture, including, without limitation, the provisions of the Indenture (other than acceleration as provided in the Indenture under the caption “Events of Default and Remedies of Bondholders-Application of Net Revenues and Other Funds After Default; Acceleration”), unless such Bondholders have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby.

(E) No provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties under the Indenture.

(F) The Trustee is not to be deemed to have knowledge of and is not to be required to take any action with respect to, any Event of Default (other than an Event of Default described under (a) or (b) under the paragraph “Events of Default” above) or event which would, with the giving of notice, the passage of time or both, constitute an Event of Default, unless the Trustee has actual knowledge of such event or has been notified in writing of such event by the City, the Owners of twenty-five percent (25%) in aggregate amount of Bond Obligation of the Bonds at the time Outstanding or the Applicable Credit Provider. Without limiting the generality of the foregoing, the Trustee will not be required to ascertain, monitor or inquire as to the performance or observance by the City of the terms, conditions, covenants or agreements set forth in the Indenture (including, without limitation, the covenants of the City set forth in the Indenture), other than the covenants of the City to make payments with respect to the Bonds when due

C-27 as set forth in the Indenture and to file with the Trustee when due, such reports and certifications as the City is required to file with the Trustee under the Indenture.

(G) No permissive power, right or remedy conferred upon the Trustee under the Indenture will be construed to impose a duty to exercise such power, right or remedy.

(H) The Trustee will not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee will determine to make such further inquiry or investigation, it will be entitled to examine the books, records and premises of the City, personally or by agent or attorney.

(I) The Trustee will not be responsible for:

(1) the application or handling by the City of any Net Revenues or other moneys transferred to or pursuant to any Requisition or Request of the City in accordance with the terms and conditions of the Indenture;

(2) the application and handling by the City of any other fund or account designated to be held by the City under the Indenture;

(3) any error or omission by the City in making any computation or giving any instruction pursuant to the Indenture and may rely conclusively on any computations or instructions furnished to it by the City in connection with the requirements of the Indenture and the Tax Certificate; or

(4) the construction, operation or maintenance of the Enterprise by the City.

(J) Whether or not therein expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee will be subject to the provisions of the Indenture described under this caption “The Trustee”.

(K) The Trustee will have no responsibility with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds.

Modification or Amendment of the Indenture

Amendments Permitted. (A)(1) The Indenture and the rights and obligations of the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into with the written consent of the Owners of a majority in aggregate amount of Bond Obligation of the Bonds (or, if such Supplemental Indenture is only applicable to a Series of Bonds, such Series of Bonds) then Outstanding has been filed with the Trustee; provided that if such modification or amendment will, by its terms, not take effect so long as any Bonds of any particular maturity remain Outstanding, the consent of the Owners of such Bonds will not be required and such Bonds will not be deemed to be Outstanding for the purpose of any calculation of Bonds Outstanding described under this caption “Modification or Amendment of the Indenture”.

C-28 (2) For any Series of Bonds for which there is a letter of credit or policy of bond insurance in place securing such Series of Bonds, the written consents of each provider of a letter of credit or a policy of bond insurance, as well as the consent of any provider of a liquidity facility then in effect if the rights and security of such provider will be materially adversely affected, for such Series of Bonds filed with the Trustee will be accepted in lieu of consent of the Owners of such Series of Bonds and will be deemed to be the consent of all of the Owners of such Series of Bonds for purposes of satisfying the requirements described in the preceding paragraph, provided that, for all Outstanding Bonds of such Series that are insured by a policy or policies of municipal bond insurance, at the time such consent is given the provider of such policy or policies of municipal bond insurance will be a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance, in one of the two highest Rating Categories of Moody’s or Standard & Poor’s.

(3) No such modification or amendment will (a) extend the fixed maturity of any Bond, or reduce the amount of principal thereof, or extend the time of payment or reduce the amount of any mandatory sinking fund payment provided for the payment of any Bond, or reduce the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof exclusively, without the consent of the Owner of each Bond so affected, or (b) reduce the aforesaid percentage of Bond Obligation the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Net Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture, or deprive the Owners of the Bonds of the lien created by the Indenture on such Net Revenues and other assets (in each case, except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It will not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Indenture, but it will be sufficient if such consent will approve the substance thereof. Promptly after the execution and delivery by the Trustee and the City of any Supplemental Indenture under the provisions of the Indenture described under this caption “Modification or Amendment of the Indenture-Amendments Permitted”, the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture to the Owners of the Bonds at the addresses shown on the registration books of the Trustee. Any failure to give such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such Supplemental Indenture.

(4) A copy of each Supplemental Indenture entered into by the City and the Trustee pursuant to the provisions described under this caption “Modification or Amendment of the Indenture- Amendments Permitted” will be sent by the City to Moody’s and Standard & Poor’s.

(B) The Indenture and the rights and obligations of the City, of the Trustee and of the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City may adopt without the consent of any Bondholders but only to the extent permitted by law and only for any one or more of the following purposes:

(1) to add to the covenants and agreements of the City in the Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved in the Indenture to or conferred upon the City;

(2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable, and which will not materially and adversely affect the interests of the Owners of the Bonds;

C-29 (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute thereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said Act or similar federal statute, and which will not materially and adversely affect the interests of the Owners of the Bonds;

(4) to make modifications or adjustments necessary, appropriate or desirable to provide for the issuance of Variable Rate Indebtedness, Capital Appreciation Indebtedness or Parity Debt with such interest rate, payment, maturity and other terms as the City may deem desirable; subject to the provisions of the Indenture;

(5) to provide for the issuance of Bonds in book-entry form or bearer form, provided that no such provision will materially and adversely affect the interests of the Owners of the Bonds;

(6) if the City agrees in a Supplemental Indenture to maintain the exclusion of interest on a Series of Bonds from gross income for purposes of federal income taxation, to make such provisions as are necessary or appropriate to ensure such exclusion;

(7) to provide for the issuance of an additional Series of Bonds pursuant to provisions of the Indenture; and

(8) for any other purpose that does not materially and adversely affect the interests of the Owners of the Bonds.

Defeasance

Discharge of Indenture. Bonds of any Series or a portion thereof may be paid by the City in any of the following ways:

(a) by paying or causing to be paid the Bond Obligation of and interest on such Outstanding Bonds, as and when the same become due and payable;

(b) by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount and subject to the conditions as described under the caption “Defeasance-Deposit of Moneys or Securities with Trustee” to pay or redeem such Outstanding Bonds; or

If the City pays all Series for which any Bonds are Outstanding and also pay or cause to be paid all other sums payable under the Indenture by the City, as well as any amounts due and owing under any Credit Agreement then in effect, then and in that case (but subject to any additional requirements in connection therewith as may be imposed by any insurer of the Bonds and set forth in a Supplemental Indenture), at the election of the City (evidenced by a Certificate of the City filed with the Trustee signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds have not been surrendered for payment, the Indenture and the pledge of Net Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon Request of the City, the Trustee will cause an accounting for such period or periods as may be requested by the City to be prepared and filed with the City and will execute and deliver to the City all

C-30 such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver to the City all moneys or securities or other property held by it pursuant to the Indenture which, as evidenced by a verification report, upon which the Trustee may conclusively rely, from a firm of certified public accountants, are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption.

Discharge of Liability on Bonds. Upon the deposit with the Trustee, escrow agent or other fiduciary, in trust, at or before maturity, of money or securities in the necessary amount and subject to the conditions as described under the caption “Defeasance-Deposit of Moneys or Securities with Trustee” to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to maturity, notice of such redemption has been given as in the Indenture provided or provision satisfactory to the Trustee have been made for the giving of such notice, then (but subject to any additional requirements with respect thereto as may be imposed by any insurer of the Bonds and set forth in a Supplemental Indenture) all liability of the City in respect of such Bond will cease, terminate and be completely discharged, provided that the Owner thereof will thereafter be entitled to the payment of the principal, Accreted Value and premium, if any, and interest on the Bonds, and the City will remain liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of the Indenture and the continuing duties of the Trustee under the Indenture.

The City may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, will be deemed to be paid and retired.

Deposit of Money or Securities With Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and will be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption has been given as in the Indenture provided or provision satisfactory to the Trustee has been made for the giving of such notice, the amount to be deposited or held will be the principal amount, Accreted Value or Redemption Price of such Bonds and all unpaid interest thereon to the redemption date; or

(b) Defeasance Securities, the principal of and interest on which when due will, in the opinion of an independent certified public accountant delivered to the Trustee (upon which opinion the Trustee may conclusively rely), provide money sufficient to pay the principal, Accreted Value or Redemption Price of and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal, Accreted Value or Redemption Price and interest become due, provided that, in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption has been given as in the Indenture provided or provision satisfactory to the Trustee has been made for the giving of such notice; provided, in each case, that the Trustee has been irrevocably instructed (by the terms of the Indenture or by Request of the City) to apply such money to the payment of such principal, Accreted Value or Redemption Price and interest with respect to such Bonds.

C-31 Miscellaneous

Liability of City Limited to Net Revenues. Notwithstanding anything in the Indenture or in the Bonds contained, the City will not be required to advance any moneys derived from any source other than the Net Revenues and other assets pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal, Accreted Value or Redemption Price of or interest on the Bonds or for any other purpose of the Indenture.

The Bonds are special, limited obligations of the City. The Bonds will not be deemed to constitute a debt or liability of the City, the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory provision, or a pledge of the faith and credit of the City, the State of California or of any political subdivision thereof, but will be payable, except to the extent of certain amounts held under the Indenture pledged therefor, solely from Net Revenues. Neither the faith and credit nor the taxing power of the City, the State of California or of any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or the interest on the Bonds. The issuance of the Bonds will not directly or indirectly or contingently obligate the City, the State of California or any political subdivision thereof to levy or to pledge any form of taxation whatsoever therefor or to make any appropriation for their payment.

The Series 2019 Bonds

Establishment and Application of Series 2019 Costs of Issuance Fund. The Trustee will establish, maintain and hold in trust a separate fund designated as the “Series 2019 Costs of Issuance Fund,” until such time as required under the Seventh Supplemental Indenture. The Trustee will deposit to the Series 2019 Costs of Issuance Fund, the applicable amounts specified in the provisions of the Indenture regarding the Application of Proceeds of the Series 2019 Bonds and Certain Funds Held under the Indenture. All money in the Series 2019 Costs of Issuance Fund will be used and withdrawn by the Trustee to pay the Costs of Issuance of the Series 2019 Bonds upon receipt of Requisition(s) of the City filed with the Trustee, each of which will be sequentially numbered and will state the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. Each such Request of the City will be sufficient evidence to the Trustee of the facts stated therein and the Trustee will have no duty to confirm the accuracy of such facts. At the date designated in the Seventh Supplemental Indenture or upon the earlier Request of the City, any remaining balance in the Series 2019 Costs of Issuance Fund will be transferred to the Series 2019 Project Fund.

Establishment and Application of the Series 2019 Project Fund. The Trustee will establish, maintain and hold in trust a separate fund designated as the “Series 2019 Project Fund.” All money in the Series 2019 Project Fund will be disbursed, upon the Request of the City, for the payment of the costs of the design, acquisition and construction of capital improvements to the Enterprise as determined by the City and the incidental costs and expenses related thereto (including reimbursement to the City for any such costs or expenses paid by it). Each such Request of the City will be sufficient evidence to the Trustee of the facts stated therein and the Trustee will have no duty to confirm the accuracy of such facts.

When the design, acquisition and construction of all capital improvements determined by the City to be funded from the Series 2019 Project Fund have been completed (as evidenced by a Certificate of the City filed with the Trustee), the Trustee will transfer any balance remaining in the Series 2019 Project Fund for deposit in the Wastewater Fund, unless the City provides an opinion of counsel to the effect that another use of such moneys will not cause the interest represented by the Series 2019 Bonds to be included in the gross income of the Owners thereof for federal income tax purposes, in which case such money may be expended by the City as provided in such opinion.

C-32 Establishment and Application of the Series 2008A Credit Facility Reimbursement Fund. The Trustee will establish, maintain and hold in trust a separate fund designated as the “Series 2008A Credit Facility Reimbursement Fund.” Upon Written Request of the City, the Trustee will transfer such money in the Series 2008A Credit Facility Reimbursement Fund to the Series 2008A Credit Provider to reimburse the Series 2008A Credit Provider for a draw on the Series 2008A Credit Facility and to pay the draw fee associated with such draw. Upon making the deposit and transfer set forth in the Seventh Supplemental Indenture, the Trustee will close the Series 2008A Credit Facility Reimbursement Fund.

Establishment and Application of the Termination Fund. The Trustee will establish, maintain and hold in trust a separate fund designated as the “Termination Fund.” Upon Written Request of the City, the Trustee will transfer such money in the Termination Fund to the Series 2008A Counterparty as a payment of the Termination Payment. Upon making the deposit and transfer set forth in the Seventh Supplemental Indenture, the Trustee will close the Termination Fund.

Terms of Series 2019 Bonds Subject to the Indenture. Except as in the Seventh Supplemental Indenture expressly provided, every term and condition contained in the Indenture will apply to the Seventh Supplemental Indenture and to the Series 2019 Bonds with the same force and effect as if the same were therein set forth at length, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to the Seventh Supplemental Indenture.

The Seventh Supplemental Indenture and all the terms and provisions therein contained will form part of the Indenture as fully and with the same effect as if all such terms and provisions had been set forth in the Indenture. The Indenture is thereby ratified and confirmed and will continue in full force and effect in accordance with the terms and provisions thereof, as supplemented and amended thereby.

Continuing Disclosure. Under the Seventh Supplemental Indenture, the City covenants and agrees to comply with the Series 2019 Continuing Disclosure Agreement as it may from time to time thereafter be amended or supplemented. Notwithstanding any other provision of the Indenture, failure of the City to comply with the requirements of the Series 2019 Continuing Disclosure Agreement, as it may from time to time thereafter be amended or supplemented, will not be considered an Event of Default and the Trustee will have no right to accelerate amounts due under the Indenture as a result thereof; provided, however, that the Trustee and the Owners of not less than 25% in principal amount of the Outstanding Series 2019 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations in this paragraph with respect to the Series 2019 Continuing Disclosure Agreement.

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APPENDIX D

PROPOSED FORM OF OPINION OF BOND COUNSEL

[Closing Date]

City of Richmond Richmond, California

City of Richmond, California Wastewater Revenue Bonds, Series 2019A

City of Richmond, California Wastewater Revenue Refunding Bonds, Series 2019B (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the City of Richmond, California (the “Issuer”) in connection with the issuance of $22,510,000 aggregate principal amount of City of Richmond, California Wastewater Revenue Bonds, Series 2019A (the “Series 2019A Bonds”), and the issuance of $66,075,000 aggregate principal amount of City of Richmond, California Wastewater Revenue Refunding Bonds, Series 2019B (the “Series 2019B Bonds” and, together with the Series 2019A Bonds, collectively, the “Bonds”) issued pursuant to Charter of the City of Richmond and Chapter 13.56 of Article 13 of the Richmond Municipal Code (the “Bond Law”) and pursuant to the Master Indenture dated as of October 1, 2006, as previously supplemented and amended (the “Master Indenture”), and as supplemented by a Seventh Supplemental Indenture dated as of June 1, 2019 (the “Seventh Supplemental Indenture” and collectively with the Master Indenture, the “Indenture”) between the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture, the Tax Certificate, dated the date hereof (the “Tax Certificate”), certificates of the Issuer, the Trustee, and others, opinions of counsel to the Issuer and the Trustee and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph

D-1 hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against a municipal corporation and chartered city in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding special, limited obligations of the Issuer.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Net Revenues and any other amounts held by the Trustee in any fund or account established pursuant to the Indenture, except the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture.

3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by the City of Richmond (the “City”), The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “Trustee”) and Willdan Financial Services, as dissemination agent (the “Dissemination Agent”) in connection with the issuance by the City of $22,510,000 principal amount of City of Richmond Wastewater Revenue Bonds, Series 2019A and $66,075,000 principal amount of Wastewater Revenue Refunding Bonds, Series 2019B Bonds (collectively, the “Series 2019 Bonds”). The Series 2019 Bonds are being issued pursuant to the terms of an Indenture of Trust, dated as of October 1, 2006 (the “Master Indenture”), as previously amended and supplemented, including as supplemented by the Seventh Supplemental Wastewater Revenue Bond Indenture, dated as of June 1, 2019 (collectively, the “Indenture”), each by and between the City and the Trustee. The City, the Trustee and the Dissemination Agent hereby covenant and agree as follows:

SECTION 1. Purpose of this Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City, the Trustee, and Dissemination Agent for the benefit of the Owners and Beneficial Owners of the Series 2019 Bonds and in order to assist the Participating Underwriters (as defined below) in complying with the Rule (as defined below).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section 2, the following capitalized terms have the following meanings:

“Annual Report” means any Annual Report of the City provided pursuant to, and as described in, Section 3 and Section 4 of this Disclosure Agreement.

“Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2019 Bonds (including persons holding Series 2019 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2019 Bonds for federal income tax purposes.

“Commission” means the Securities and Exchange Commission.

“Disclosure Representative” means the Director of Finance of the City or any designee, or such other officer of employee as the City may designate in writing to the Trustee and the Dissemination Agent from time to time.

“Dissemination Agent” means initially Willdan Financial Services, or any successor Dissemination Agent designated in writing by the City and which has filed a written acceptance of such designation with the City and the Trustee.

“Filing Date” means March 26 of each year, commencing March 26, 2020.

“Financial Obligation” means a debt obligation; derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or a guarantee of a debt obligation or derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation. The term financial obligation excludes municipal securities for which a final official statement has been provided to the MSRB consistent with the Rule.

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“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.

“Official Statement” means the Official Statement dated June 13, 2019 relating to the Series 2019 Bonds.

“Owners” shall mean either the registered owners of the Series 2019 Bonds, or, if the Series 2019 Bonds are registered in the name of Depository Trust Company or another recognized depository, any applicable participant in its depository system.

“Participating Underwriters” collectively means the original underwriters of the Series 2019 Bonds required to comply with the Rule in connection with the offering of the Series 2019 Bonds.

“Repository” means the Electronic Municipal Market Access website maintained by the MSRB at http://emma.msrb.org or any other entity designated or authorized by the Commission to receive reports pursuant to the Rule.

“Rule” means paragraph (b) (5) of Rule 15c2-12 adopted by the Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“Specified Events” means any of the events listed in Section 5(a) of this Disclosure Agreement.

“State” means the State of California.

SECTION 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than the Filing Date following the end of the City’s Fiscal Year (currently June 30), commencing with the report for the City’s Fiscal Year ended June 30, 2019, provide to the Repository copies of an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the Repository, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of such Annual Report and later than the date required above for the filing of such Annual Report if they are not available by that date. If the City’s Fiscal Year changes, the City shall give notice of such change in the same manner as for a Specified Event under Section 5(c).

(b) Not later than fifteen (15) Business Days prior to the date specified in Section 3(a) for providing each Annual Report to the Repository, the City shall provide such Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent); provided, however, that the City may distribute the Annual Report to the Repository itself after providing written notice to the Dissemination Agent. If by said date, the Trustee and the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such failure to receive the Annual Report.

(c) If the City is unable to provide to the Dissemination Agent an Annual Report by the date required in Section 3(a), the Dissemination Agent is irrevocably instructed to file a notice, in electronic format, to the Repository in substantially the form attached hereto as Exhibit A.

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(d) The Dissemination Agent shall file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was provided.

SECTION 4. Content of Annual Reports. The Annual Report of the City shall contain or incorporate by reference the following:

(a) The audited financial statements of the City, for the Fiscal Year most recently ended, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Reports are required to be filed pursuant to Section 3(a) of this Disclosure Agreement, the Annual Reports shall contain unaudited financial statements in a format similar to the financial statements contained in the final official statement relating to the Series 2019 Bonds, and the audited financial statements shall be filed in the same manner as the Annual Reports when they become available.

(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided for in Section 3(a), financial information and operating data with respect to the City and the Wastewater Enterprise for preceding Fiscal Year, substantially similar to that provided in the tables and charts in the statement, as follows:

(i) A maturity schedule for the outstanding Series 2019 Bonds, and a listing of Series 2019 Bonds redeemed prior to maturity during the prior Fiscal Year.

(ii) Information for the preceding Fiscal Year to update the following tables presented in the Official Statement:

(A) Table 3–Customers Served and Total Revenues;

(B) Table 4–Principal Wastewater Customers;

(D) Table 6–Average Monthly Wet Weather Flow; and

(E) Table 9–Summary of Revenues, Expenses and Changes in Fund Net Position; and

(F) the balance in the Project Fund.

Any or all of the items listed above may be included by specific reference to other documents, including official statements or other disclosure documents of debt issues of the City or related public entities, which have been filed with the Repository or the Commission. If the document included by reference is a final official statement, it must be available from the Repository. The City shall clearly identify each such other document so included by reference.

The contents, presentation and format of the Annual Reports may be modified from time to time as determined in the judgment of the City to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the City or to reflect changes in the business, structure, operations, legal form of the City or any mergers, consolidations, acquisitions or dispositions made by or affecting the City; provided that any such modifications shall comply with the requirements of the Rule.

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SECTION 5. Reporting of Specified Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2019 Bonds:

(i) Principal and interest payment delinquencies on the Series 2019 Bonds;

(ii) Non-payment related defaults, if material;

(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;

(v) Substitution of credit or liquidity providers, or their failure to perform;

(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed (Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Series 2019 Bonds, or other material events affecting the tax status of the Series 2019 Bonds;

(vii) Modifications to rights of the Series 2019 Bondholders, if material;

(viii) Bond calls, if material, and tender offers;

(ix) Defeasances;

(x) Release, substitution, or sale of property, if any, securing repayment of the Series 2019 Bonds, if material; and

(xi) Rating changes.

(xii) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.

(xiii) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(xv) Incurrence of a Financial Obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; and

(xvi) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.

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(b) The Trustee shall, promptly upon obtaining actual knowledge at its principal corporate trust office as specified in Section 12 hereof of the occurrence of any of the Specified Events, and notify the City of such Specified Events; provided, that failure by the Trustee to so notify the City shall not relieve the City of its duty to report Specified Events as required in this Section 5. For the purpose of this Disclosure Agreement “actual knowledge” means actual knowledge at the corporate trust office of the Trustee by an officer of the Trustee with responsibility for matters related to the administration of the Indenture.

(c) Wherever the City obtains knowledge of the occurrence of Specified Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Specified Event.

(d) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(x), (a)(xiii), (a)(xiv), (a)(xiv), and (a)(xv) of this Section 5 contain the qualifier “if material”. The City shall cause a notice to be filed as set forth in this Section 5 with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the City obtains knowledge of the occurrence of any of these Specified Events, the City will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in Section 5(c).

(e) If in response to a request under Section 5(b), the City determines that the Specified Event would not be material under applicable federal securities laws, the City shall so notify the Trustee in writing and instruct the Dissemination Agent not to report the occurrence.

(f) If the Dissemination Agent has been instructed by the City to report the occurrence of a Specified Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Specified Events described in Section 5(a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Series 2019 Bonds pursuant to the Indenture.

(g) For purposes of this Disclosure Agreement, any event described in Section 5(a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under State or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.

(h) The Dissemination Agent may conclusively rely on an opinion of counsel that the City’s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule.

SECTION 6. Termination of Reporting Obligation. The obligations of the City under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series 2019 Bonds. If such termination occurs prior to the final maturity of the Series 2019 Bonds, the City shall give notice of such termination in the same manner as for a Specified Event under Section 5(c).

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SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing sixty (60) days written notice to the City. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent.

The initial Dissemination Agent shall be Willdan Financial Services.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall consent to any amendment so requested by the City provided such amendment does not impose any greater duties, or risk of liability on the Trustee, as the case may be) and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Section 3(a), Section 4, or Section 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Series 2019 Bonds, or the type of business conducted;

(b) The undertakings, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2019 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Owners of the Series 2019 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners of the Series 2019 Bonds, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Series 2019 Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in its next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, including the information then contained in the City’s official statements or other disclosure documents relating to debt issuances, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Specified Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Specified Event in addition to that which is specifically required by the Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Specified Event.

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SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, the Trustee may (and upon written request of at least 25% aggregate principal amount of Outstanding Series 2019 Bonds, with indemnification satisfactory to the Trustee, shall) or any Owner or Beneficial Owner of the Series 2019 Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City, the Trustee or the Dissemination Agent, as the Case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture with respect to the Series 2019 Bonds, and the sole remedy under this Disclosure Agreement in the event of any failure of the City, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance and no person or entity shall be entitled to recover monetary damages under this Disclosure Agreement.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent and the Trustee, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section 11 shall survive resignation or removal of the Dissemination Agent and payment of the Series 2019 Bonds.

SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the City: City of Richmond Richmond City Hall 450 Civic Center Plaza Richmond, California 94804 Attention: Finance Director Telephone: 510-620-6512 Fax: 510-620-6542

If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 400 South Hope Street, Suite 500 Los Angeles, California 90071 Attention: Corporate Trust Services Phone: 213-630-6400 Fax: 213-630-6480

If to the Dissemination Agent: Willdan Financial Services 27368 Via Industria, Suite 200 Temecula, California 92590 Attention: Manager Phone: 951-587-3500 Fax: 951-587-3510

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters, the Owners and Beneficial Owners from time to time of the Series 2019 Bonds, and shall create no rights in any other person or entity.

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SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated: ______, 2019

CITY OF RICHMOND

By:______Finance Director

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By:______Authorized Officer

WILLDAN FINANCIAL SERVICES, as Dissemination Agent

By:______Authorized Officer

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EXHIBIT A

FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: City of Richmond, California

Name of Bond Issue: City of Richmond, California Wastewater Revenue Bonds, Series 2019A City of Richmond, California Wastewater Revenue Refunding Bonds, Series 2019B

Date of Issuance: June 26, 2019

NOTICE IS HEREBY GIVEN that the City of Richmond, California (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by an Indenture of Trust, dated as of October 1, 2006, as previously supplemented and amended, as further supplemented and amended, by a Seventh Supplemental Wastewater Revenue Bond Indenture, dated as of June 1, 2019, each by and between the City and the Trustee. [The City anticipates the Annual Report will be filed by ______]

Dated:______

[WILLDAN FINANCIAL SERVICES, as Dissemination Agent]

By:______Authorized Officer cc: City of Richmond

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APPENDIX F

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Series 2019 Bonds, payment of principal, interest and other payments on the Series 2019 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Series 2019 Bonds and other related transactions between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the City (the “Issuer”) nor the Trustee appointed with respect to the Series 2019 Bonds (the “Trustee”) takes any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series 2019 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series 2019 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2019 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2019 Bonds. The Series 2019 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Series 2019 Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC.

2. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its

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Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

3. Purchases of Series 2019 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2019 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2019 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2019 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2019 Bonds, except in the event that use of the book-entry system for the Series 2019 Bonds is discontinued.

4. To facilitate subsequent transfers, all Series 2019 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2019 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2019 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2019 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2019 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2019 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2019 Bonds may wish to ascertain that the nominee holding the Series 2019 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Series 2019 Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2019 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2019 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Principal and interest payments on the Series 2019 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC’s records. Payments by

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Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as securities depository with respect to the Series 2019 Bonds at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, security certificates are required to be printed and delivered.

10. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

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